Trading in gilts made easier

ANNUAL POLICY 2005-06/ DEBT MARKET REFORMS

SGL account holders can sell securities in the same session to CSGL account holders

The Reserve Bank of India in its annual policy statement permitted the sale of government securities procured at the primary auction by banks and primary dealers to non banking entities on the same day.

Technically, banks and primary dealers which are the SGL (subsidiary general ledger) account holders, can offload their stock to CSGL (constituent subsidiary general ledger) account holders -- corporate, provident funds, mutual funds -- on the same day. This doesn't mean short-selling, however.

SGL is the special account which could be maintained only by banks and primary dealers -- the only participants in the primary auction of the government securities. Other entities dealing in government paper have to maintain CSGL accounts with banks and primary dealers.

At present, sale of government securities allotted in primary issues can be entered into on the same day only between entities maintaining SGL account with RBI.

It used to lead to loss of the market value of the securities for retail buyers like mutual funds or trusts if the market situation changed the following day with adverse interest rate movements.

A case in point is the auction of the 6.85 per cent 2012 paper which was reissued as a paper for the debut market borrowing programme in the current fiscal. The auction could not get a good market response and was dealt at a discount. Therefore, the buyers had to buy these papers at a loss in market value.

In order to bring about a transparency in the prices of securities dealt in the repo and reverse repo market, the RBI proposes to introduce an electronic trading platform for conduct of market repo operations in government securities, in addition to the existing voice based system.

In order to enable liquidity management, reverse repo and repo are the two open market tools adopted by the RBI. While reverse repo was used for absorbing excess liquidity in the market through sale of government papers, repo is used to infuse the funds into the market by buying papers from the market.

Day trade

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• Banks and PDs, which are the subsidiary general ledger account holders, can offload their stock to constituent subsidiary general ledger(CGSL) account holders -- corporate, provident funds, mutual funds -- on the same day.
• SGL is the special account which could be maintained only by banks and primary dealers -- the only participants in the primary auction of the government securities. Other entities dealing in government paper have to maintain CSGL accounts with banks and primary dealers.