Trading Systems

Government securities do not have to be listed on an exchange. All government securities are ‘deemed’ listed as and when they are issued.

The National Stock Exchange was the first stock exchange to introduce a transparent, screen based trading system in the wholesale debt market including government securities in June 1994. Prior to the commencement of trading in the WDM segment of NSE, the only trading mechanism in the debt market was the telephone. NSE provided, for the first time in the country, an online, automated, screen based system known as National Exchange for Automated Trading across a wide range of debt instruments. This system is an order driven system which matches the best buy and sell orders on a price time priority and simultaneously protects the identity of the buyer and seller. Trading under this system leads to a risk free, efficient price mechanism and transparency. The trades on the WDM segment could be outright trades or repo transactions with a flexibility fir varying days of settlement (T + 0 to T + 5) and repo periods (3 – 14 days). Order matching is carried out only between orders which carry the same conditions with respect to settlement days, trade type, and repo period, if any.

The OCTEI also started trading in government securities in July 1997. The NSE and OTCEI members are authorized to transact business on behalf of commercials banks. Non-banking clients may also trade via brokers. In order to provide another platform for trading in government securities, the Reserve bank permitted trading in government securities at the Bombay Stock Exchange in October 2000. The trading, however, commenced in June 2001. The Reserve Bank announced, in 2000-01, its decision to move over in due course to order driven screen based trading in government securities on all stock exchanges.


The government securities can be held and transacted in two forms – dematerialized SGL form and physical form. Registration of the participant with the Public Debt Office of the Reserve bank is mandatory in case of holding and trading securities in the physical form.

Subsidiary General Ledger Account:

The Reserve bank acts as a depository cum clearing house and settlement is through accounts maintained with the Reserve bank called the Subsidiary General Ledger (SGL) accounts. The physical securities are dematerialized and the relevant are in the form of book entries. Every participant in the government securities market maintains SGL and current accounts with the Reserve Bank. Those not eligible to maintain direct accounts with the Reserve banks have the facility to open constituent SGL accounts or SGL. If accounts with banks who have direct SGL accounts. The Reserve bank has permitted the National Securities Clearing Corporation Limited, banks, insurance companies, financial institutions, and primary dealers to offer constituent SGL, account facility to an investor who is interested in participating in the government securities market. Any trade among participants is settled via this facility. The parties exchange the relevant SGL instruction receipts and the mode of transaction is delivery versus payment. The DVP system ensures settlement by synchronizing the transfer of securities with cash payment. The Reserve Bank settles only on DVP – 1 basis where both funds and securities are settled on a gross basis. For all transactions undertaken directly between SGL participants, the settlement period is of T + 0 or T + 1 days while for transactions routed through brokers of NSE, BSE or OTCEI the settlement period is upon T+5 days. Participants have the flexibility to decide the terms of settlement. Trades are settled by T+3, if desired by participants. This reduces settlement risks in securities transactions and also prevents diversion of funds through SGL transactions.

SGL accounts are maintained by the Public Debt Office. The PDO oversees the settlement of transactions through SGL and enables the transfer of securities from one participant to another. The seller fills up the SGL form, the buyer countersigns it, and the seller sends this form to the Reserve bank. The buyer transfers funds towards payment. Inter bank government securities trades are settled on the same business day while trades with non bank counterparts settle either on the same day or up to five business days after the trade date. Secondary market trades in government securities between banks are carried on up to 1.00 pm on business days and settled on the same day. Trades after that are settled the next day.

The transfer of government securities does not attract stamp duty or transfer fee. Moreover there is no tax deduction at source on these securities.

Trade in the physical form is settled by the parties directly. Securities are delivered in the form of a physical certificate along with the transfer deed duly executed by the authorized signatures of the transferor. The transferee has to lodge the certificates with the Reserve bank for transfer.