RBI Draft Master Direction on Secondary Market Transactions in Government Securities – 25th June 2026

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

Section A: Outright OTC Transactions & Settlement

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.

Section B: ‘When Issued’ (WI) Transactions

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.

Section C: ‘Short Sale’ Transactions

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.

Section D: Conduct & Penalties

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.

RBI Press Release

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