Mumbai, Dec. 26: The Reserve Bank of India (RBI) today released the long-awaited blueprint that allows small investors to directly buy and sell sovereign bonds (gilts) on bourses — much like they trade in shares of companies.
Government securities, existing ones and those that will be issued in future, will change hands in a T+3 rolling settlement cycle, with the facility of intra-day short-selling. The settlement duration will be shortened when cycles for equity trading are abridged in future.
Releasing draft guidelines aimed at giving ordinary investors entry into a market that has been the preserve of banks and institutional investors, the central bank listed BSE, NSE and Over the Counter Exchange of India as the bourses where gilts will be traded. “The RBI wants to embrace the equity model through a nation-wide, anonymous, order-driven, screen-based trading system of stock exchanges,” a release said.
To trade in gilts, a broker must be registered with Sebi and satisfy the minimum capital requirement, which will be enhanced later. They will not be allowed to settle deals for regulatory entities, banks and primary dealers, who will use custodian banks for the purpose.
Margins for government securities trading will be limited to mark-to-market margins, plus an additional 15 per cent to contain volatility in the secondary market. Exchanges will be required to install intra-day risk containment system before they are given permission.
All outstanding and newly issued government securities will be traded. Currently, about 154 central government securities and 539 state government papers are listed on NSE’s wholesale debt market segment.
Like stocks, settlement of gilts will be backed up by guarantees from a clearing corporation or a clearing house. To facilitate this, exchanges will have to set up a trade or settlement-guarantee fund, in addition to the corpus they already have in place for the equity market.
Subsidiary general ledger (SGL) account holders can continue to hold gilts directly in this kitty or via NSDL and CSDL.
Clearing houses will make good cash shortfalls faced by their members to narrow the scope of systemic risks. While intra-day short-selling in gilts is acceptable, there would be stiff penalties for trade failures.