The Securities and Exchange Board of India (SEBI) has taken a significant step in expanding the participation of stock brokers in the Indian financial market with its recent circular dated February 11, 2025. The circular facilitates the inclusion of SEBI-registered stock brokers in the Negotiated Dealing System-Order Matching (NDS-OM) for trading in Government Securities (G-Secs). This move aims to make the trading of G-Secs more accessible to a wider array of market participants, strengthening market liquidity and efficiency.
What Is NDS-OM?
The Negotiated Dealing System-Order Matching (NDS-OM) is a platform operated by the Reserve Bank of India (RBI) to facilitate the electronic trading of Government Securities. Traditionally, this platform was limited to direct participants such as banks and financial institutions, who had easy access to government bond trading. However, SEBI’s recent initiative, approved by the RBI through its notification on February 7, 2025, allows SEBI-registered stock brokers to enter the NDS-OM platform, thereby increasing competition and broadening access to G-Secs for retail and institutional investors alike.
Key Features of the Circular
One of the main highlights of the circular is the introduction of a Separate Business Unit (SBU) for stock brokers who wish to participate in the NDS-OM platform. This SBU will operate independently of the main securities broking activities of the stock broker and will be exclusively engaged in trading G-Secs via the NDS-OM. This structure ensures that the activities of the SBU are distinct and separated from the rest of the broker’s operations.
The stock broker is required to comply with several safeguards to ensure operational integrity and investor protection:
Segregation of Activities: The NDS-OM activities under the SBU must be kept separate from the broker’s regular securities market activities. This includes maintaining an arm’s length relationship between these different areas of business.
Separate Accounting and Net Worth: Stock brokers are required to maintain separate accounts for their SBU activities, ensuring that their net worth for the purpose of SEBI’s securities market regulations does not include the SBU’s account.
Jurisdictional Oversight: Since the SBU will be engaging with the RBI’s NDS-OM, the regulatory framework for the SBU will be governed by the RBI’s guidelines, not SEBI’s. This distinction underlines the fact that the activities of the SBU will be outside the jurisdiction of SEBI’s usual grievance redressal mechanisms and Investor Protection Fund (IPF) available for investors participating in the regular securities markets.
Implications for Stock Brokers and Investors
For stock brokers, this circular represents a significant opportunity to diversify into the lucrative market of government securities trading. By setting up a dedicated SBU, stock brokers can directly participate in the G-Sec market, providing their clients with access to a new asset class. This could be especially beneficial for brokers with a broad retail client base, as it allows them to offer more comprehensive investment options.
However, stock brokers will need to comply with the necessary infrastructure, accounting, and regulatory requirements to set up and operate an SBU successfully. The segregation of activities and net worth, as well as the need for strict compliance with RBI’s regulatory framework, could be operationally intensive.
For investors, this development offers an exciting opportunity to gain easier access to the Government Securities market. With more participants entering the space, the overall depth and liquidity of the G-Sec market are expected to improve, ultimately benefiting retail and institutional investors alike.
