G-Secs market expansion: SEBI clears direct NDS-OM access for non-bank brokers

Days after the Reserve Bank of India (RBI) announced expanded access to the Negotiated Dealing System–Order Matching (NDS-OM) platform, the Securities and Exchange Board of India on Tuesday issued a circular enabling SEBI-registered non-bank stock brokers to trade government securities (G-Secs) directly.

NDS-OM is an electronic trading platform for secondary market transactions in government securities, on behalf of their clients.

Access to NDS-OM was previously available only to regulated entities and to the clients of banks and standalone primary dealers.

"To enhance access of retail investors to government securities, the Reserve Bank shall expand the access of NDS-OM, the electronic trading platform for secondary market transactions in government securities, to non-bank brokers registered with SEBI," said RBI Governor Sanjay Malhotra during his recent monetary policy briefing.

SEBI outlines safeguards

According to SEBI's circular, stock brokers will be required to establish a Separate Business Unit (SBU) within their existing entities to manage NDS-OM activities. This structure ensures a clear demarcation between their traditional securities market operations and G-Secs trading activities.

NDS-OM operations under the SBU must be ring-fenced from other securities market-related activities, maintaining an arm's-length relationship.

The SBU will exclusively handle transactions on the NDS-OM platform.

Brokers must maintain distinct accounts for the SBU, with net worth calculations for the stock broking entity excluding the SBU's finances.

SEBI has clarified that the Grievance Redressal Mechanism and Investor Protection Fund (IPF) of stock exchanges, along with the SEBI Complaints Redress System (SCORES), will not cover investors using SBU services.

The regulatory shift is expected to democratise access to the G-Secs market, potentially increasing liquidity and retail participation.