The Securities and Exchange Board of India (Sebi) has allowed stock brokers to access the Negotiated Dealing System-Order Matching (NDS-OM) platform for trading in government securities (G-Sec). To do so, brokers will be required to set up a separate business unit (SBU).
“In order to facilitate Sebi-registered stock brokers to participate in the Government Securities (G-Secs) market in the NDS-OM, it has been decided that they may do so under a Separate Business Unit (SBU) of the stock broking entity itself,” Sebi said in a circular on February 11.
Brokers must ensure that the activities of the NDS-OM under the SBU are kept separate from the stock broker’s other market activities, maintaining an “arms-length relationship” between the two.
The SBU will exclusively handle transactions on NDS-OM and must maintain a separate account for it, the regulator said.
The net worth of the SBU shall be kept segregated from the net worth of the stock broker in the securities market. Net worth criteria for stock brokers shall be satisfied after excluding the account of the SBU.
Sebi further said, “The net worth of the SBU shall be kept segregated from the net worth of the stock broker in the securities market.” The stock broker’s net worth must meet the required criteria after excluding the SBU’s account.
The market regulator further clarified that since the activities of the SBU fall under the jurisdiction of a different regulatory authority, investors using the SBU’s services will not have access to the grievance redressal mechanisms or Investor Protection Fund (IPF) of the stock exchanges, or to Sebi Complaints Redressal System (SCORES).
What is NDS-OM?
NDS-OM is a screen-based electronic order matching system for trading government securities in the secondary market, managed by the Reserve Bank of India (RBI).
Access to NDS-OM was previously available to only banks, primary dealers, insurance companies, and mutual funds, who maintain SGL accounts with the RBI.
This decision came after the RBI Governor Sanjay Malhotra announced last week during the monetary policy briefing, that access to NDS-OM will be extended to non-bank brokers to encourage retail participation.
“To enhance access for retail investors to government securities, the Reserve Bank will expand access to the NDS-OM platform, the electronic trading platform for secondary market transactions in government securities, to non-bank brokers registered with Sebi,” said Governor Malhotra.
Enhancing Retail Participation
Vishal Goenka, Co-Founder of IndiaBonds, believes this step is a transformative step that will significantly enhance retail participation in government securities, fostering a more inclusive and robust financial ecosystem
"This is a significant step towards democratising the Government securities market. Historically, access to NDS-OM was limited to entities like banks and mutual funds, creating barriers for retail investors. This move aligns with the RBI's initiative to broaden market participation," Goenka said.
"Stockbrokers already facilitate retail participation in various asset classes, and now, with their access to NDS-OM, it is natural that retail investors will also benefit. This decision effectively removes procedural hurdles, allowing retail investors to access Government securities through the same brokerage platforms they already use for equities and other investments. This seamless integration will not only enhance market liquidity and improve price discovery but also encourage broader participation in risk-free Government securities," he said.
"We believe this development will empower retail investors, promote financial literacy, and contribute to the overall growth of India's fixed income market, he added.
