As part of the new guidelines for the 'when-issued' (WI) market, the Reserve Bank of India (RBI) has dispensed with the requirement that any WI transaction in government securities must have a primary dealer (PD) as a counterparty. | |
| The RBI said only primary dealers can take a short position in the WI market. Non-PD entities can sell the WI security to any counterparty only if they have a preceding purchase contract for equivalent or higher amount. |
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| 'When, as and if issued' security refers to a security that has been authorised for issuance but not yet actually issued. All WI transactions are on an 'if' basis, to be settled if and when the actual security is issued. |
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| The notification states that WI trading can now be undertaken in the case of central government-dated securities that are being reissued as well as newly issued, on a selective basis. |
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| The net short and long positions limits for PDs and non-PDs have also been revised. In the case of PDs, open positions (long and short) cannot exceed 10 per cent of the notified amount for reissued securities. |
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| For the newly issued securities, the limit for short position has been fixed at 6 per cent against the earlier 10 per cent and long position at 10 per cent of the notified amount. |
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| For non-PDs, in the case of reissued securities, long position cannot exceed 5 per cent of the notified amount, while for newly issued securities, it cannot exceed 5 per cent of the notified amount. |
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| The WI transactions will start on the issue notification date and will cease on the working day immediately preceding the date of issue. |
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| All WI transactions for all trade dates will be contracted for settlement on the date of issue. In the case of reissued securities, at the time of settlement on the date of issue, trades in the WI security will be netted off with trades in the existing security. WI transactions can be undertaken only on NDS-OM (negotiated dealing system order matching). |
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| In case a PD is unable to deliver securities to the buyer after the auction on the settlement (or issue) date, the transaction will be settled as per the default settlement mechanism of CCIL. In the event of cancellation of the auction for whatever reason, all WI trades will be deemed null and void. |
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