RBI/2007-2008/220
IDMD.DOD.No.3165
/11.01.01(B)/ 2007-08
January 01, 2008
All
Scheduled Commercial Banks (except RRBs)
& Primary Dealers
Dear
Sirs,
Secondary Market Transactions in Government Securities
- Short-selling
With a view to enhancing liquidity in
the G-sec market and providing the market participants with a tool to express
two-way view on interest rates, intra-day short sale in the Central Government
dated securities was permitted vide our circular
IDMD.No. 03/11.01.01 (B)/2005-06 dated February 28, 2006. Subsequently, the
period allowed for shorting was extended to five trading days vide our circular
IDMD.No/11.01.01(B) / 2006-07 dated January 31, 2007.
2.
It was specified in the aforementioned guidelines that "the sale leg as well
as the cover leg of the transaction should be executed only on the Negotiated
Dealing System – Order Matching (NDS-OM) platform." In terms of the announcement
made vide paragraphs 126 and 127 of the Mid-Term Review of Annual Policy Statement
2007-08, it has now been decided to permit undertaking of the cover leg of short-sale
transactions even outside the NDS-OM platform. In other words, the transactions
to cover short positions in government securities may be undertaken either on
or outside the NDS-OM platform, i.e., the telephone market or through purchases
in primary issuance. The sale leg of short sale transactions shall, however,
continue to be undertaken on the NDS-OM platform only.
3.
Banks and Primary Dealers may put in place proper internal controls and systems
to ensure that the stipulated short sale limits are adhered to, taking into account
the cover operations done both on and outside NDS-OM.
4.
All other terms and conditions specified in above circulars remain unchanged.
Yours
faithfully,
(K. V. Rajan)
Chief General Manager