Sebi proposes measures to boost retail participation in G-Sec market

Stock brokers may be allowed in the RBI-operated NDS-OM system for government securities

The Securities and Exchange Board of India (Sebi) is considering initiatives to promote retail participation in government securities (G-Secs) through stock brokers.

In a consultation paper released on Friday, the markets regulator proposed allowing registered stock brokers to engage in the G-Sec market via the Negotiated Dealing System-Order Matching (NDS-OM), which is operated by the Reserve Bank of India (RBI). The NDS-OM operates as an anonymous order matching system for secondary market trading in  government securities.

Under the proposed framework, stock brokers would engage in trading of G-Secs through a separate business unit (SBU). Given that stock brokers typically serve a large number of retail clients, access to the NDS-OM system is anticipated to boost retail participation.

 

At present, the NDS-OM system’s membership is open to entities like banks, primary dealers, insurance companies, and mutual funds, which maintain subsidiary general ledger (SGL) accounts with the RBI.

“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 respective regulatory authority and all activities of the business unit of stock broker facilitating trading on the NDS-OM would be under the jurisdiction of that regulatory authority,” states the consultation paper.

Sebi has also proposed measures to ring-fence the activities of stock brokers from those of the NDS-OM. Stock brokers will be required to maintain a separate account for the SBU, ensuring an arms-length relationship; net-worth shall be considered separately

The draft circular, the regulator emphasised: “Stock brokers shall ensure that the activities of the NDS-OM under an SBU are segregated and ring-fenced from the securities market-related activities of the stock broker, and an arms-length relationship between these activities is maintained.”

Furthermore, Sebi noted that since the operations of this separate unit would be overseen by another regulatory authority, the grievance redress mechanism and investor protection fund provided by stock exchanges will not be accessible to investors using this service.

It has sought public comments on the proposals by October 25.