For effective implementation of the RBI Retail Direct platform for Government Securities (G-secs), market participants are pushing for tweaks in the rules, seeking relaxation in KYC norms, interoperability for buyers and a clarity on whether bonds bought through the retail direct platform must be held in demat form. Investments done directly by retail investors in G-sec may also not reflect in the single record of all financial assets, as being envisaged under the account aggregator guidelines, sources said.
The Reserve Bank of India in July unveiled a scheme allowing retail investors to directly participate in the G-sec market. They can open and maintain a ‘Retail Direct Gilt Account’ (RDG Account) with the RBI through a portal, which will also provide access to primary issuance of G-Secs and the secondary market as well. G-Secs held in demat mode are reflected in the CSGL or Constituent Subsidiary General Ledger (SGL) account of the depositories.
“If a demat account holder in CDSL sells the G-Sec to a buyer whose demat account is with NSDL, then transfer between these accounts is not online; it entails pre approval from the Public Debt Office (of the RBI) and hence not seamless. This is in sharp contrast to the transfer of other securities between these two Depositories, whose systems are interoperable…The PDO is the depository for G-Secs and is outside the ambit of the Depositories Act,” a source in the debt market said.
Sources said this lack of interoperability may create liquidity issues for trading in the secondary market in a stock exchange, as settlement has to be done on T+2 (transaction plus two days) basis.
In 2005, RBI created its online platform, Negotiated Dealing System (NDS-OM), operated by the Clearing Corporation and Indian Ltd (CCIL), for issue of G-Secs. At present, the RBI’s Core Banking Solution (E-Kuber), trading platform (NDS-OM), depository system (PDO/SGL) and clearing and settlement by CCIL, together provide a comprehensive, seamless and end-to-end platform for trading and settlement of G-Secs for banks and select institutional investors on T+1 basis with settlement guarantee.
The present scheme announced by RBI enables individual investors to directly open on-line Retail Direct Gilts account (account) with the central bank. Now, a retail investor can place a direct bid on NDS-OM as well as trade in the secondary market. So far, only institutional players like banks, primary dealers, insurance companies, mutual funds, foreign portfolio investors and high net worth individuals had direct access to this platform. Gilts are normally traded on NDS-OM in lots of Rs 5 crore each, but retail investors have been allowed to trade with a minimum investment of Rs 10,000.
Sources said fresh mandate on KYC with the RBI should not be mandatory as bank already have KYC on the investors and can also use the common KYC mechanism being used across financial service providers. “The scheme is also silent on whether G-Secs held in this retail account in SGL mode can be demated. Moreover, as RBI is not a Financial Information Provider under its Account Aggregator Directions, the investment held in this account will not reflect in the single record of all financial assets. These issues need to be addressed,” a market participant said.
Some industry executives feel that G-secs should be held preferably on the stock market’s depository platform instead of the SGL system for convenience of investors. “Slightly over 50 per cent of Sovereign Gold Bonds (SGB) are held in demat mode. Although SGBs are available for subscription in SGL mode also, retail investors prefer demat mode. We believe this can be made the preferred mode for G-secs also,” they said.
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