On June 25, 2026, the Reserve Bank of India (RBI) released a Draft Master Direction consolidating and streamlining the compliance instructions for secondary market transactions in Government Securities (G-Secs).
1. Applicable Entities
The directions govern secondary market transactions undertaken in the over-the-counter (OTC) market and on recognized stock exchanges in India. The applicability is broad but well-defined:
- Resident Entities: Firms, companies, corporate bodies, institutions, provident funds, pension funds, trusts, HUFs, and individuals.
- Financial Institutions: Scheduled Commercial Banks (SCBs), Standalone Primary Dealers (SPDs), and Cooperative Banks (subject to specific sector regulations).
- Foreign Entities: Foreign Portfolio Investors (FPIs) permitted under FEMA debt instrument regulations.
- Exceptions: Transactions by the RBI, Central/State Governments, and Value Free Transfers (VFT) are explicitly excluded.
2. Detailed Analysis of Amendments & Action Plans
Standardization of Reporting and Settlement Timelines
The draft enforces strict reporting windows for NDS-OM (Negotiated Dealing System-Order Matching) and standardizes the settlement cycle.
Specific Changes Required
- All non-NDS-OM transactions must be reported to the NDS-OM by both counterparties within 15 minutes of execution.
- Mandatory T+1 settlement basis for all G-Sec transactions (Exceptions exist only for FPIs, who may use T+1 or T+2).
- Settlements must execute on a Delivery versus Payment (DvP) basis through CCIL.
Management Action Plan
- IT & Systems Update: Automate OTC trade capture systems to ping the NDS-OM API well within the 15-minute threshold.
- Liquidity Management: Align treasury funding cycles strictly to a T+1 window to prevent “SGL bouncing” penalties.
- Process Audit: Review all constituent accounts (demat/gilt) to ensure direct members have web-based NDS-OM access enabled for non-individual clients.
Real-World Example
Scenario: A Corporate Treasury agrees to bilaterally purchase ₹50 Crore face value of 7.10% GS 2029 from a Scheduled Commercial Bank over the phone at 11:00 AM on a Tuesday.
Application: The bank’s dealer must input the trade into NDS-OM before 11:15 AM. The treasury must ensure funds are available in their settlement account by Wednesday (T+1) morning, while the bank ensures securities are in their SGL account, facilitating a flawless DvP settlement through CCIL.
Restructuring of ‘When Issued’ Trading Limits and Positions
This section governs trading in G-Secs that have been authorized for issuance but not yet issued, mitigating risk through strict net position capping.
Specific Changes Required
- Position Limits: SCBs and SPDs are capped at 25% (Long and Short) of the notified amount in the auction. Other eligible participants are capped at 10%.
- Retail Restrictions: Individuals, HUFs, and NRIs are restricted to Long positions only.
- Settlement: All WI trades settle on the actual issue date and must be netted off with trades in the same security.
Management Action Plan
- Risk Controls: Implement hard limits in the Order Management System (OMS) capping traders at the 25% or 10% threshold of the notified auction amount.
- Client Categorization: Map retail and NRI client profiles in the trading system to strictly disable short-selling capabilities in the WI market.
- Contingency Planning: Establish automated protocols for CCIL default settlement mechanisms in case of delivery failures on the issue date.
Real-World Example
Scenario: The RBI announces an auction for a new 10-year benchmark bond for ₹10,000 Crore.
Application: A Standalone Primary Dealer (SPD) can short-sell this security up to ₹2,500 Crore (25%) in the WI market before the auction. However, a local mutual fund (other eligible participant) can only take a position up to ₹1,000 Crore (10%). If a retail investor tries to short the bond before issuance, the broker’s system must reject the trade.
Formalization of Short Selling Limits & “Notional” Short Sales
The RBI has clarified the limits and accounting treatments for short selling, including utilizing a bank’s own portfolio for “notional” short sales.
Specific Changes Required
- Limits: Liquid G-Secs: 2% of outstanding stock or ₹500 cr (whichever is higher). Other G-Secs: 1% or ₹250 cr.
- Covering Window: All short sales must be covered within three months from the date of the transaction.
- Accounting: Short trades must be recorded in a dedicated Securities Short Sold (SSS) Account and classified under “Held For Trading” (HFT), marked-to-market daily.
Management Action Plan
- Chart of Accounts (CoA) Update: Finance teams must immediately create the “SSS Account” structure in the general ledger.
- Limit Monitoring Dashboards: Develop a real-time dashboard tracking short positions against the 2%/₹500cr limit and counting down the 3-month cover deadline.
- Borrowing Strategy: Treasury must align repo borrowing (or GSL transactions) to ensure borrowed securities are available for T+1 delivery against any short sales.
Real-World Example
Scenario: A bank’s trading desk anticipates yields on the 6.94% GS 2036 will rise. They short sell ₹50 Crore of the bond on June 15.
Application: The bank must borrow ₹50 Crore of the same security via the reverse repo market by June 16 (T+1) to deliver to the buyer. The transaction is tagged in the NDS-OM and logged in the SSS Account. By September 14 (3 months), the bank must purchase ₹50 Crore of the bond outright in the secondary market to close the short position and return the borrowed securities.
Strict Enforcement of Market Conduct
Consolidated rules regarding SGL bouncing, data dissemination, and market abuse.
Specific Changes Required
- Failure to settle due to insufficient funds or securities will be officially penalized as “SGL bouncing”.
- Mandatory adherence to the Reserve Bank of India (Prevention of Market Abuse) Directions, 2019, and the FIMMDA code of conduct.
- Violations can lead to bans from secondary market dealing for up to one month, publicly announced by the RBI.
Management Action Plan
- Concurrent Audits: Mandate concurrent auditors to specifically review ‘When Issued’ and ‘Short Sale’ transactions daily for compliance.
- Trader Training: Conduct mandatory refreshers for all dealing room staff on the FIMMDA code of conduct.
- Pre-Trade Validation: Implement hard blocks in trading software that prevent order submission if projected SGL balances fall below required delivery levels.
3. Conclusion & Strategic Next Steps
The 2026 Master Direction significantly modernizes and tightens the regulatory framework around G-Sec trading. To ensure zero business interruption by the time the directions are formally enforced, management should immediately establish a cross-functional task force (comprising Treasury, IT, Risk, and Compliance) to implement the OMS limits, create the required SSS accounting ledgers, and automate the 15-minute NDS-OM reporting framework.