Sebi Proposes Registered Brokers to Trade in Government Securities via RBI's Electronic System

On Friday, the Securities and Exchange Board of India (Sebi) suggested that registered stock brokers be permitted to trade in government securities (G-Secs) via the negotiated dealing system-order matching (NDS-OM), an electronic platform managed by the Reserve Bank of India (RBI). This initiative aims to enhance retail participation in G-Secs.

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The NDS-OM is a screen-based, anonymous order matching system for secondary market trading of government securities. Currently, entities such as banks, primary dealers, insurance companies, and mutual funds with Subsidiary General Ledger (SGL) accounts at RBI can trade on this platform. These entities are known as Primary Members (PMs).

Proposed Structure for Stock Brokers

Sebi's consultation paper suggests that stock brokers should establish a separate business unit (SBU) within their firms specifically for G-Secs trading. This SBU will operate independently from their usual securities market activities. The financials and operations of the SBU must remain distinct from the broker's regular business.

The net worth of the SBU will not contribute to the overall financial requirements of the stock broker. Additionally, existing mechanisms like the Investor Protection Fund (IPF) will not apply to investors using the SBU for G-Secs trading.

Regulatory Oversight and Safeguards

Sebi will oversee policy, risk management, investor grievances, and enforcement related to stock brokers trading on NDS-OM. The regulator emphasised that activities under an SBU must be segregated and ring-fenced from other securities market activities of the broker. An arms-length relationship between these activities should be maintained.

This proposal is designed to provide retail investors with easier access to government securities while ensuring clear regulations and safeguards are in place for stock brokers' activities.

Public Feedback and Next Steps

Sebi has invited public comments on this proposal until October 25. The feedback will help shape the final regulations aimed at facilitating smoother access for retail investors to G-Secs while maintaining robust oversight.