The Hindu Business Line : Norms for short sales relaxed

For more volumes
Direct trades and broker intermediation, till now confined to outright transactions, allowed in short sales
Non-deposit taking non-bank finance companies can open CSGL accounts.

C. Shivkumar

Bangalore, Oct. 30 In a bid to increase participation in and impart greater liquidity to the government security markets, the Reserve Bank of India (RBI) has extended the “short sale” and “when issued” transactions to platforms other than the Negotiated Dealing System-Order Matching (NDS-OM) platform.

Currently, traders are permitted short sales only through the NDS-OM. Direct trades and broker intermediation are restricted only to outright transactions.

The relaxation now allows the participation of brokers and direct trades between bank or primary dealers in short sales. But the RBI has also initiated steps to increase the depth of the markets. Currently, debt markets in the country are dogged by restricted number of participants. Last year, the RBI had permitted Constituents’ Subsidiary Ledger (CSGL) accountholders to trade through the NDS-OM platform, to raise the participation. SGL accountholders, almost entirely banks, are permitted to open additional accounts on behalf of their customers with the RBI.

This was referred to as CSGL. Access to the NDS-OM using the CSGL route was extended to insurance companies, mutual funds and large provident funds for trading in government securities.

The Credit Policy has now permitted important non deposit taking non-bank finance companies to open CSGL accounts. These NBFCs have now been categorised as “qualified entities” for accessing the NDS-OM through the CSGL route. Such entities are expected to include global consumer /vehicle finance companies operating in India through subsidiaries and domestic micro finance institutions.

The purpose behind this move was to increase the trade volumes in the debt markets. Currently, government securities daily trade volumes are barely about Rs 4,500 crore.

Traders said the widening and increasing of the depth of the debt markets would improve liquidity across all categories of government securities. This would, in turn, improve the price discovery mechanism, they added.

More Stories on : Govt Bonds | Monetary Policy | Derivatives Markets

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