SEBI mulls allowing brokers to trade in G-Secs via RBI-managed electronics system

To facilitate retail participation in government securities (G-Secs), SEBI on Friday proposed allowing registered stock brokers to trade in bonds through negotiated dealing system-order matching, an electronic system managed by RBI.

These brokers will operate a separate business unit (SBU) for this purpose, SEBI suggested in its consultation paper.

The regulatory authority will oversee all policy, risk management, investor grievance, and enforcement related to stock brokers trading on negotiated dealing system-order-matching.

Negotiated dealing system-order matching (NDS-OM) is an electronic system, managed by the Reserve Bank of India (RBI), for trading government securities in the secondary market. It operates on a screen-based, anonymous order-matching platform.

Currently, membership is available to entities like banks, primary dealers, insurance companies and mutual funds organisations that have SGL (Subsidiary General Ledger) accounts with RBI. These are called Primary Members (PMs) and are allowed by RBI to trade on NDS-OM.

In its consultation paper, the regulator proposed that registered stock brokers should operate as SBUs within their company for trading in G-Secs. This unit will function independently from their regular securities market activities.

Also, SBU's activities and finances should be kept separate from the stock broker's regular business.

The net worth of the SBU should not count towards the stock broker's overall financial requirements.

Further, existing stock exchange mechanisms like the Investor Protection Fund (IPF) will not apply to investors using the SBU for G-Secs trading, the regulator suggested.

"Stock brokers shall ensure that activities of the NDS-OM under an SBU are segregated and ring-fenced from the securities market-related activities of the stock broker and arms-length relationship between these activities are maintained," it added.

The proposal aimed at facilitating smoother access for retail investors to government securities while maintaining clear regulations and safeguards for the activities of stock brokers.

The Securities and Exchange Board of India (SEBI) has sought public comments till October 25 on the proposal.