On January 04, 2022, to provide liquidity in the secondary market, the Reserve Bank of India (RBI) has introduced the market-making scheme to promote retail participation in Government Securities (G-Secs) by providing prices/quotes to Retail Direct Gilt Account Holders (RDGAHs) enabling them to buy/sell securities under the RBI Retail Direct (RBI-RD) Scheme.
- Under the scheme, RBI allowed the Primary Dealers (PDs) to be present on the Negotiated Dealing System- Order Matching (NDS-OM) Platform (odd-lot and Request for Quotes (RFQ) segments) throughout market hours and respond to buy/sell requests from RDGAHs.
- RBI has created a special Switch window for PDs, which will be opened every month, wherein they could exchange the illiquid/semi-liquid securities acquired through the RFQ segment from the RDGAHs with liquid securities from RBI at FBIL (Financial Benchmarks India Limited)/market prices.
Background:
i.On November 12, 2021, Prime Minister Narendra Modi virtually launched the RBI Retail Direct (RBI-RD) scheme to enable small investors to have their small savings directly and securely in G-Secs issued by both Centre and state governments.
ii.Under the Scheme, the retail individual investors could open a Retail Direct Gilt (RDG) Account with the RBI (maintained in the books of RBI), using an online portal.
RBI-RD Scheme – Market Making:
a.Obligations of PD:
i.Odd Lot segment:
- PDs may provide buy and sell quotes on the Negotiated Dealing System- Order Matching Platform (NDS-OM) odd lot segment for liquid securities throughout market hours.
- Alternatively, the secondary market trading time may be divided into time slots and it shall be ensured that PDs provide buy/sell quotes during these time slots for the liquid securities that they hold.
- PDs Association of India may decide on the allocation of time slots amongst PDs (and inform the same to IDMD (Internal Debt Management Department (IDMD), RBI).
ii.RFQ segment: PDs could also present on the RFQ platform throughout market hours and respond to the request for buy/sell from the RDGAHs with a market-relevant quote.
b.Simplified KYC for transactions with RDGAHs in the RFQ segment: RBI directed the PDs to rely on the Know Your Customer (KYC) verification of the RDGAHs which was done under the RD scheme. Hence, no further KYC verification will be required for transacting with RDGAHs on the RFQ segment of NDS-OM.
- Rule 9 sub-rule 14 clause (i) of The Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, provides for simplified measures to verify the client’s identity.
c.PDs are directed to submit a report to IDMD, RBI, on total turnover achieved on the secondary market and turnover achieved via the odd-lot segment, on an annual basis.
d.Market Making Scheme was issued by RBI in the exercise of the powers conferred under Section 29(2) of the G-Secs Act 2006.
Additional Info:
i.PDs refers to the entities authorized by RBI to undertake primary dealership activities in G-Secs.
ii.Liquid Securities – It refers to the security identified and published by Fixed Income Money Market and Derivatives Association of India (FIMMDA)/ FBIL as a ‘liquid security’ for the purpose of short sale transactions.
iii.NDS-OM means RBI’s screen-based, anonymous electronic order matching system for trading in G-Secs in the secondary market.
Recent Related News:
In November 2021, RBI launched Reserve Bank – Integrated Ombudsman Scheme (RB-IOS) to further improve the grievance redress mechanism for resolving customer complaints against entities regulated by the RBI. The scheme is based on ‘One Nation-One Ombudsman’.
About Reserve Bank of India (RBI):
Establishment– April 1, 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar
