Rbi Moves To Clean Up Gilt Trading

The Reserve Bank of India (RBI) today said to impart transparency in government securities traded by clients through the constituent subsidiary general ledger (CSGL) accounts, a special feature has been incorporated in the negotiated dealing system (NDS) for reporting and settlement of such trades. Provision has been made in the NDS for giving quotes on behalf of CSGL account holders.

The central bank has also decided to accelerate the measures under contemplation for further reducing the scope for trading in physical form.

While reiterating that a RBI regulated entity should not with immediate effect undertake gilt transactions in the physical form with any broker, the central bank said with a view to encourage holding of government securities in the dematerialized mode it has allowed all entities having a subsidiary general ledger (SGL) account with it (RBI) to open an additional account for their clients' transactions in gilts.

Although being non-banks, depositories and organisations such as the Stock Holding Corporation of India Ltd have been provided a facility of an additional SGL account to open CSGL Account on behalf of their clients.

In light of the recent fraudulent transactions in gilts in physical form by few co-operative banks with the help of some brokers, the RBI said it has been decided to speed up measures for further reducing the scope for trading in physical form.

In this regard all entities regulated by the central bank should necessarily hold their investments in government securities portfolio in either SGL (with RBI) or CSGL (with a scheduled commercial bank / state co-operative bank / primary dealer / financial institutions / and SHCIL or in a dematerialised account with depositories (NSDL /CDSL). Further, only one CSGL or dematerialised account can be opened by any such entity.

In case the CSGL accounts are opened with a scheduled commercial bank or state co-operative bank, the account holder has to open a designated funds account for all CSGL related transactions with the same bank. In case a CSGL account is opened with any of the non-banking institution, the particulars of the designated funds account (with a bank) should be intimated to that institution.

The entities maintaining the CSGL / designated funds accounts will be required to ensure availability of clear funds in the designated funds accounts for purchases of sufficient securities in the CSGL account for sales before putting through the transactions.

The SGL account holders and all the RBI regulated entities holding gilts in the form of book debt certificates or government promissory note forms should ensure compliance to the directions on demat and SGL/CSGL accounts before August 31, 2002. Other non-regulated entities are advised to follow suit in their own interest and for smooth conduct of gilt transactions.