The Securities and Exchange Board of India on Friday allowed stock brokers to deal with government securities through the RBI-managed Negotiated Dealing System-Order Matching and announced rules for such business.
NDS-OM is a screen-based electronic anonymous order matching system for secondary market trading in government securities owned by the Reserve Bank of India.
The SEBI, in a circular, said that stock brokers will have to ensure that trading in the secondary market for government bonds is done under a separate business unit that is "segregated and ring-fenced from other securities market-related activities".
For this, the firms have to prepare and maintain a separate account for the SBU on an arms-length basis.
Moreover, the net worth of the unit shall be kept segregated from the net worth of the stock broker. The net worth criteria for a stock broker shall be satisfied after excluding the account of the SBU, the SEBI said.
Since the activities of the SBU fall under the jurisdiction of a different regulatory authority, investors utilising the services will not have access to the grievance redressal mechanism and the Investor Protection Fund of stock exchanges or the SCORES system, SEBI said.
The matters related to policy, eligibility criteria, risk management, investor grievances, inspection, enforcement, claims, etc, for stock brokers to transact on the NDS-OM would be specified under the regulatory framework issued by the RBI.
The easing of norms is being done to facilitate retail participation in the purchase and trading of G-secs.
A G-sec is a tradeable instrument issued by the central or a state government with maturities of both short term (usually called treasury bills) or long term (usually called government bonds).
The central government issues both, treasury bills and bonds or dated securities, while the state governments issue only bonds or dated securities, which are called state development loans.
G-secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
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