SEBI has made it mandatory for brokers to set up a separate business unit (SBU) for trading in government securities (G-Secs) through the Negotiated Dealing System–Order Matching (NDS-OM). This decision comes after the Reserve Bank of India announced the extension of NDS-OM access to non-bank brokers to enhance retail participation in G-Secs trading. The NDS-OM is an electronic order-matching system used for secondary market trading in G-Secs that was previously only available to regulated entities and clients of banks and standalone primary dealers.
According to a circular issued by SEBI, brokers must establish SBUs exclusively for handling transactions on the NDS-OM platform. These SBUs should be separate from other securities-market related activities and maintained at an arm’s length relationship. Additionally, brokers are required to maintain distinct accounts for the SBU, ensuring that the net worth criteria for the stock broking entity are met excluding the SBU’s finances.
Furthermore, SEBI clarified that investors using the services of the SBU will not be covered by its complaints redressal system (SCORES), nor will they be eligible for the grievance redressal mechanism and Investor Protection Fund (IPF) of stock exchanges.
The regulator’s move aims to ring-fence the NDS-OM platform and ensure a dedicated focus on G-Secs trading through a separate unit managed by brokers. This restructuring is expected to streamline operations and enhance transparency in the trading of government securities through NDS-OM in the Indian financial market.
