Sebi wants to monitor gilts trading

The capital market watchdog wants to regulate the government securities market too. The Securities and Exchange Board of India (Sebi) is learnt to have written to the finance ministry it should be allowed to regulate and monitor the proposed order matching system under the Reserve Bank of India's (RBI's) negotiated dealing system (NDS).

Sebi officials did not respond to Business Standard queries on the issue but privately some officials confirmed that a note on NDS had indeed been sent to the ministry.

At present, the NDS comes under the purview of the RBI which monitors the reporting of deals done by the brokers. In order to bring in more transparency in deals, the order matching system is being built, which will enable banks to trade in government securities on an anonymous screen-based trading system.

Sebi is learnt to have written to the finance ministry, stating that it should be given the regulatory authority to monitor the proposed order matching system since it qualifies under the definition of an exchange.

Sources said the trading platform in an order matching system will act like an exchange where two parties could come together for a trade.

According to the Securities Contracts Regulation Act, Sebi is to be the regulatory authority for all exchanges, and, therefore, there is no logic for the NDS platform to be governed by the RBI. This will create bifurcation of regulatory authority for similar activity, the source told Business Standard.

The RBI has set up a three-member external committee for an audit of the order matching system. These members are from the Indian Institute of technology, Mumbai, State Bank of India and a chartered accountant.

This committee is mandated to examine the efficiency of the system before it is formally launched for trading by banks. According to banking sources, the system will take couple of months before the RBI launches it formally.