SEBI Mandates Separate Units for Brokers Trading G-Secs
In a move to enhance retail participation in government securities (G-Secs) trading, the Securities and Exchange Board of India (SEBI) has mandated brokers to establish a separate business unit (SBU) dedicated to trading through the Negotiated Dealing System–Order Matching (NDS-OM). This decision comes in the wake of the Reserve Bank of India’s recent announcement during a monetary policy briefing, extending access to NDS-OM to non-bank brokers.
The NDS-OM, an electronic order-matching system primarily used for secondary market trading in G-Secs, was previously accessible only to regulated entities and clients of banks and standalone primary dealers. With this new directive, brokers are now required to create SBUs exclusively for transactions on the NDS-OM platform, as outlined in a circular issued by SEBI.
Ring-fence NDS-OM for Enhanced Transparency
To ensure transparency and prevent conflicts of interest, SEBI has instructed brokers to maintain a clear separation between the NDS-OM unit and other securities-market related activities. This means that the SBU must operate independently, with distinct accounts and financial records that are separate from the broker’s overall finances. By implementing this ring-fencing measure, SEBI aims to uphold the integrity of G-Secs trading and protect the interests of retail investors engaging with these brokers.
Moreover, the regulator has stated that its complaints redressal system (SCORES), along with the grievance redressal mechanism and Investor Protection Fund (IPF) of stock exchanges, will not cover investors utilizing the services of the SBU. This highlights the need for investors to exercise caution and due diligence when engaging with brokers operating under the new SBU framework.
In conclusion, SEBI’s mandate for brokers to establish separate units for G-Secs trading marks a significant step towards promoting inclusivity and transparency in the Indian securities market. By encouraging retail participation and ensuring the integrity of transactions through the NDS-OM platform, SEBI aims to create a level playing field for all market participants, fostering trust and confidence in the financial system.
This article was crafted to provide a comprehensive overview of SEBI’s recent directive and its implications for brokers and investors alike. As the regulatory landscape continues to evolve, staying informed and adapting to these changes is crucial for navigating the complexities of the financial markets. Stay tuned for further updates and insights on regulatory developments in the securities industry.
