𝐒𝐄𝐁𝐈 𝐏𝐫𝐨𝐩𝐨𝐬𝐞𝐬 𝐀𝐜𝐜𝐞𝐬𝐬 𝐭𝐨 𝐍𝐃𝐒-𝐎𝐌 𝐟𝐨𝐫 𝐒𝐭𝐨𝐜𝐤 𝐁𝐫𝐨𝐤𝐞𝐫𝐬 𝐭𝐨 𝐓𝐫𝐚𝐝𝐞 𝐢𝐧 𝐆𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬

SEBI has issued a draft circular proposing to allow SEBI-registered stock brokers to access the Negotiated Dealing System-Order Matching (NDS-OM) platform for trading in government securities (G-Secs) through a Separate Business Unit. This initiative aims to enhance retail participation in the G-Sec market.

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐆𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭 𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬?
Section 2(f) of the Government Securities Act, 2006 defines G-Secs as securities created issued by the Government to raise public loans. They can take the form of Government Promissory Note (GPN), bearer bond, Stock, or bond held in a Bond Ledger Account (BLA).

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐍𝐃𝐒-𝐎𝐌?
NDS-OM is a screen-based electronic order matching system managed by the Reserve Bank of India (RBI) for trading in government securities. Currently, access to NDS-OM is limited to entities like banks, mutual funds, and insurance companies, who maintain Subsidiary General Ledger (SGL) accounts with the RBI.

𝐏𝐫𝐨𝐩𝐨𝐬𝐚𝐥 𝐢𝐧 𝐭𝐡𝐞 𝐂𝐨𝐧𝐬𝐮𝐥𝐭𝐚𝐭𝐢𝐨𝐧 𝐏𝐚𝐩𝐞𝐫:

SEBI proposes that stock brokers may set up Separate Business Unit (SBUs) within their entities, ensuring that their G-Sec trading activities on NDS-OM are kept separate and ring-fenced from their securities market activities. Some of the key elements of the proposal include:

1.    SBUs should maintain an arm’s-length relationship with the stock broker’s other market-related activities. All operations of the SBU must be conducted independently.

2.    SBUs should only engage in trading activities on NDS-OM and not in any other securities market-related activities.

3.    SBUs must maintain distinct financial accounts, separate from the stock broker’s net worth, to ensure transparency in capital allocation.

4.    Investors availing services through the SBUs will not have access to stock exchanges’ grievance redressal mechanisms or Investor Protection Fund (IPF) since these fall under a different regulatory framework.

As per SEBI, the matters related to policy, eligibility criteria, risk management, investor grievances, inspections, enforcement, and claims for stock brokers transacting on NDS-OM will be governed by the regulatory framework issued by the respective regulatory authority. All activities conducted by the stock broker’s business unit involved in NDS-OM trading will fall under the jurisdiction of that regulatory authority. Further, the Grievance Redressal Mechanism and Investor Protection Fund (IPF) of the stock exchanges and SCORES will not be available for investors availing services of the SBU.

SEBI invites public comments on this draft circular by October 25, 2024.

The Consultation Paper is enclosed herewith. Readers are encouraged to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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