The National Stock Exchange of India (NSEIL) has applied to the Reserve Bank of India for permission to open a statutory general ledger (SGL) account to give a fillip to the government securities section of the wholesale debt segment.This is the first time a non-bank entity has applied for a SGL account. Traditionally only banks have been allowed to open SGL accounts.
Other investors in government debt are supposed to open constituent SGL accounts with banks in order to be able to take advantage of scripless trading in government securities. Speaking to Business Standard, R H Patil, NSE managing director, said the exchange had decided to apply for a SGL account because it has a very good country-wide network through which corporates and other wholesale investors like provident funds can invest and trade in the government securities market.
"Most banks on the other hand, do not have very good inter-connectivity between branches which hampers their ability to service constituent SGL account holders in places other than Mumbai," he said.
Other players say banks have not been very pro-active in encouraging corporates, provident funds and trusts to open constituent SGL accounts with them and the NSE with its settlement guarantee system is a good candidate for acting as a conduit for smaller investors in the wholesale debt market. If the NSE or the NSE Clearing Corporation is allowed to become a SGL account holder - the exchange in its application has left the choice up to the central bank - then investors across the country can start trading in government securities without the need for physical deliveries.
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The clearing corporation of the exchange which closely monitors the members' exposures and imposes margins is capable of adhering to the delivery-versus-payment settlement system. It will take charge of the funds portion of the settlement between the investors and will, in turn, settle with the Reserve Bank of India's public debt office.
Since this is the first time a company (the NSEIL is registered as a firm) has applied for permission to open an SGL account, the application is likely to be reverted to the finance ministry by the central bank for its approval.
If the NSE is allowed to have an SGL account, market observers say trading in debt will increase as many provident funds, for instance, who have to invest in government securities do not churn their portfolios because of settlement problems. Neither do corporates invest in gilts with their short-term surpluses.