RBI notified Retail Direct Scheme - Market Making

RBI notifies market making plan to promote retail participation in G-Secs

The Reserve Bank of India (RBI) vide notification no. RBI/2021-22/147 IDMD. PDRD. No. S1617/03.64.023/2021-22 on 04^th day of January, 2022 has introduced the market making scheme to with an objective to promote retail participation in government securities by providing prices/quotes to retail direct gilt (RDG) account holders enabling them to buy and sell securities under the RBI Retail Direct Scheme.

The RBI had earlier launched Retail Direct Scheme on November 12, 2021, to provide one-stop access to facilitate investment in government securities by retail investors. "Retail Direct Scheme" refers to the RBI Retail Direct scheme formulated to facilitate investment in Government Securities by individual investors.

Important Definitions

• "NDS-OM" or Negotiated Dealing Segment - Order Matching means RBI’s screen-based, anonymous electronic order matching system for trading in Government Securities in the secondary market.
• "Retail Direct Gilt (RDG) Account" means a gilt account maintained in the books of RBI under the Retail Direct Scheme
• Primary Dealers" means entities authorized by RBI to undertake primary dealership activities in Government Securities;
• "Request for Quotes (RFQ) segment" refers to the on-screen negotiation system of RBI’s NDS-OM system;
• "Government Securities", for the purpose of this scheme, mean securities issued in form of stock by credit to SGL/CSGL account maintained with RBI as defined under Section 3(iii) of Government Securities Act, 2006;
• "Liquid Securities" means security identified and published by Fixed Income Money Market and Derivatives Association of India (FIMMDA)/ Financial Benchmarks India Limited (FBIL) as a ‘liquid security’ for the purpose of short sale transactions.

Applicability Provisions

The Scheme is applicable to all primary dealers.

Simplified KYC for transaction with RDG account holders in RFQ segment

According to the market making scheme, primary dealers will rely on the Know Your Customer (KYC) verification of the RDG account holders done under the retail direct scheme. "No further KYC verification is required for transacting with RDG account holders on the RFQ segment of NDS-OM."

Performance Monitoring

• Primary Dealers may submit a report to IDMD, RBI, on successful trades executed in the RFQ segment, monthly on or before 10th of the following month as per the format given in Annex - I.
• Primary Dealers may submit a report to IDMD, RBI, on total turnover achieved on the secondary market and turnover achieved via the odd lot segment, on an annual basis within 15 days from the close of the FY as per the format given in Annex - II.
• The reports may be sent via an email to IDMD, RBI.
• Audit logs of the trades executed by PDs with RDG account holders shall be preserved for verification if necessary.

The Scheme deals with

• Obligations of Primary Dealers
• Simplified KYC for transaction with RDG account holders in RFQ segment
• Facilities/Incentives for fulfilling the obligations

One of the major benefit that the Retail Direct Scheme provides retail investors is access to secondary G-Sec markets. A retail investor can place buy or sell bids in secondary G-Sec markets. The trade settlement will happen with one working day.

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