Reserve Bank revises norms for 'when issued' security to boost trading

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To encourage trading in ‘When Issued’ transactions in government securities, the Reserve Bank on Thursday allowed banks to take short positions in this segment of trading, while mutual funds, insurance and pension funds, NBFCs and others are permitted to take long positions.

“It has been decided to permit the scheduled commercial banks to take short positions in the 'When Issued' (WI) market for both new and reissued securities.

“It has also been decided to permit other eligible entities viz., mutual funds, insurance companies, pension funds, housing finance companies, NBFCs and UCBs to take long position in the 'WI' market," RBI said in a statement.

WI trading means conditional transaction where a security is being authorised but not yet issued. Treasury securities, stock splits and new issues of stocks and bonds are traded on a when-issued basis.

RBI had permitted WI trading in government securities in 2006 to strengthen the debt issuance framework.

RBI said it has revised the open position limits in the WI market according to which banks can take short positions both in new and reissued securities not exceeding 5 per cent of the notified amount, while they can long positions without any limits.

Other eligible entities can take long positions with no limits, but they are not allowed to take short positions, RBI said.

As per earlier guidelines, in case of reissued security, banks were allowed to take long and short positions not exceeding 10 per cent of the notified amount for reissued security.

While, non-banks were allowed to take long position not exceeding 5 per cent.

For the newly issued security, banks could take short position not exceeding 6 per cent and long position not exceeding 10 per cent of the notified amount of security.

On the other hand, non-banks were allowed to take long positions not more than five per cent of the notified amount.