|
Trading of Government Securities on Stock Exchanges
DBOD.
No. FSC. BC. 60 - 24.76.002 dated 16th January 2003
With
a view to encouraging wider participation of all classes of investors, including
retail, in government securities, it has been decided to introduce trading in
government securities through a nation wide anonymous, order driven, screen
based trading system of the stock exchanges, in the same manner in which trading
takes place in equities. This facility of trading of government securities on
the stock exchanges would be available to banks in addition to the present NDS
of the Reserve Bank, which will continue to remain in place.
2.
Accordingly, with effect from January 16, 2003, trading of dated
Government of India (GOI) securities in dematerialized form is being allowed on
automated order driven system of the National Stock Exchange (NSE), The Stock
Exchange, Mumbai (BSE) and Over the Counter Exchange of India (OTCEI). The
scheme will subsequently be extended to GOI treasury bills and State Government
securities.
3.
In view of the familiarity of the market and its participants with the
systems, processes and procedures it has been decided to adopt the equity
trading model for trading of Government securities on the exchanges. The trading
facility on the above stock exchanges is in addition to the present system of
trading in government securities. Being a parallel system, the trades concluded
on the exchanges will be cleared by their respective clearing
corporations/clearing houses. The trades of banks have to be settled either
directly with clearing corporation/clearing house (in case they are clearing
members) or else through a clearing member custodian.
4.
As in the case of equities, banks as institutional investors, can
undertake transactions only on the basis of giving and taking delivery of
securities.
5.
With a view to facilitating participation on the Stock Exchanges within
the regulations prescribed by RBI, SEBI and the exchanges, banks are being
extended the following facilities:
(i)
Open demat accounts with a depository participant (DP) of NSDL/ CDSL in
addition to their SGL/ CSGL accounts with RBI.
(ii)
Value free transfer of securities between SGL/ CSGL and demat accounts is
being enabled at Public Debt Office (PDO), Mumbai, subject to operational
guidelines being issued by our Department of Government and Bank Accounts (DGBA)
separately.
6.
The balances in government securities maintained by the banks in the
depositories will be included for SLR purpose. Also, any shortfall in
maintenance of CRR/ SLR resulting from settlement failure (on either the NDS-OTC
market or the stock exchanges) will attract the usual penalties.
7.
Banks should take specific approval from their Board to enable them to
trade in the Stock Exchanges and should frame and implement a suitable policy to
ensure that operations in securities on the above stock exchanges are conducted
in accordance with the norms laid down by RBI/ SEBI and the respective stock
exchange.
Operational
guidelines:
8.
Banks should put in place appropriate internal control systems catering
to stock exchange trading/settlement. The back office arrangement should be such
that trading on the NDS/ OTC market and on the stock exchanges can be tracked
easily for settlement/ reconciliation. Banks should, therefore, install enabling
IT infrastructure and adequate risk management systems.
9.
The trades done through any single broker will be subjected to the
current guidelines on transactions done through brokers.
10.
Brokers/ trading members shall not be involved in the settlement process;
all trades have to be settled either directly with clearing corporation/
clearing house (in case they are clearing members) or else through clearing
member custodians.
11.
At the time of trade, securities must be available with the banks either
in their SGL or in the demat account with depositories. Any sale on T+3 basis on
the Stock Exchanges cannot be covered by a purchase on the NDS/
OTC market (even on T+0) and subsequent transfer from SGL account to
their demat account for effecting deliveries. Similarly, no sale is permitted on
NDS/ OTC on T+0 against pay-in of securities expected on T+0 on the Stock
Exchanges. Further, the purchase
transactions by banks should similarly be subject to availability of clear funds
in their settlement accounts at the time of pay-in.
12.
Any settlement failure on account of non-delivery of securities/
non-availability of clear funds will be treated as SGL bouncing and the current
penalties in respect of SGL bouncing will be applicable. Stock Exchanges will
report such failures to the respective Public Debt Offices.
13.
The settlement banks should ensure that all pay-out of funds must
necessarily be clear funds, i.e. the pay-out must not be contingent upon the
outcome of any clearing to be conducted on that day. Therefore, either the
clients must provide clear funds in their accounts or the bank may provide
credit subject to the usual credit appraisal and fixing of prudential limits.
14.
Banks should report on weekly basis to their Audit Committee of the
Board, giving the details of trades on aggregate basis done on the Stock
Exchanges and details of any "closed-out" transactions on the
exchanges.
15.
Banks should generally follow the guidelines on internal control system
(para II), and Audit, Review and Reporting (para V) as advised vide our circular
FSC. BC. 143 A/24.48.001/ 91-92 dated June 20, 1992.
Please
acknowledge receipt.
|