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Master Direction - Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026 – Draft

RESERVE BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
9^th FLOOR, CENTRAL OFFICE BUILDING, FORT
MUMBAI 400 001

Master Direction - Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026 – Draft

In exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934 (hereinafter called the Act), read with section 45U of the Act and in supersession of the directions indicated in Annex-I, the Reserve Bank of India (hereinafter called the Reserve Bank) hereby issues the following Directions.

1. Short title, scope, and commencement of the Directions

(1) These Directions shall be called the Master Direction - Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026.

(2) These Directions shall be applicable to secondary market transactions in Government securities undertaken in the over-the-counter (OTC) market and on recognised stock exchanges in India.

Provided that these Directions shall not apply to:

(a) Transactions undertaken by the Reserve Bank or the Central Government or the State Governments or the Union Territories with legislature.

(b) Value Free Transfer of Government securities undertaken in terms of the ‘Value Free Transfer (VFT) of Government Securities – Guidelines’ dated October 05, 2021, as amended from time to time.

(3) These Directions shall come into force with immediate effect.

2. Definitions

(1) In these Directions, unless the context otherwise requires:

(a) Constituent Subsidiary General Ledger (CSGL) account shall have the same meaning as assigned to it in ‘Constituents’ Subsidiary General Ledger Account: Eligibility Criteria and Operational Guidelines’ published in the Official Gazette on October 01, 2021, vide notification no. IDMD.CDD.S788/11.22.001/2021-22.

(b) Cooperative bank shall have the same meaning as assigned to it in the clause (cci) of Section 5 read with section 56 of the Banking Regulation Act, 1949.

(c) Delivery versus Payment (DvP) shall mean a settlement mechanism which stipulates that transfer of funds from the buyer of securities is made simultaneously with the transfer of securities by the seller of securities.

(d) Depository shall have the same meaning as assigned to it in Section 2(e) of the Depositories Act, 1996 (22 of 1996).

(e) Depository Participant shall have the same meaning as assigned to it in Section 2(g) of the Depositories Act, 1996 (22 of 1996).

(f) Designated Settlement Bank shall mean a bank appointed by the Clearing Corporation of India Limited (CCIL) whose current account with the Reserve Bank is used by an eligible participant not maintaining a current account with the Reserve Bank for settlement of the funds leg of their transactions in the secondary market as well as the primary market, and also for the servicing of Government securities (interest and redemption payments) held by them.

(g) Direct member of NDS-OM shall mean an entity that has direct access to NDS-OM in terms of paragraph 2(d) of the Master Direction - Reserve Bank of India (Access Criteria for NDS-OM) Directions, 2025 dated February 07, 2025, as amended from time to time.

(h) Electronic Trading Platforms (ETP) shall have the same meaning as assigned to it in paragraph 2(a)(ii) of the Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2025 dated June 16, 2025, as amended from time to time.

(i) Financial sector regulator shall mean the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA).

(j) Foreign Portfolio Investor (FPI) shall mean a person registered in accordance with the provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, as amended from time to time.

(k) Gilt account shall have the same meaning as assigned to it in in ‘Constituents’ Subsidiary General Ledger Account: Eligibility Criteria and Operational Guidelines’ published in the Official Gazette on October 01, 2021, vide notification no. IDMD.CDD.S788/11.22.001/2021-22.

(l) Government security shall have the same meaning as assigned to it in Section 2(f) of the Government Securities Act, 2006.

(m) Government Securities Lending (GSL) transaction shall have the same meaning as assigned to it in paragraph 2(1)(f) of the Reserve Bank of India (Government Securities Lending) Directions, 2023 dated December 27, 2023, as amended from time to time.

(n) Held For Trading (HFT) shall have the same meaning as assigned to it in the Reserve Bank of India (Commercial Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025 dated November 28, 2025, as amended from time to time.

(o) Indirect member of NDS-OM shall mean an entity that has indirect access to NDS-OM in terms of the paragraph 2(g) of the Master Direction - Reserve Bank of India (Access Criteria for NDS-OM) Directions, 2025 dated February 07, 2025, as amended from time to time.

(p) Negotiated Dealing System-Order Matching (NDS-OM) shall mean an ETP authorised by the Reserve Bank under the Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2025 dated June 16, 2025, as amended from time to time, for transactions in Government securities.

(q) Over-the-counter (OTC) market shall mean the market where secondary market transactions in Government securities are undertaken in any manner other than on recognised stock exchanges and shall include those undertaken on electronic trading platforms (ETPs).

(r) Recognised stock exchange shall have the same meaning as assigned to it in section 2(f) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

(s) Scheduled commercial bank shall mean a bank included in the second schedule to the Reserve Bank of India Act, 1934, other than a cooperative bank.

(t) Short sale shall mean sale of a Government security one does not own but shall not include the sale of a Government security that is not in immediate possession of the entity selling the Government security but will be received by the time of settlement (e.g., Government securities used to avail of intra-day liquidity, Government securities placed as margin with clearing houses, etc.).

(u) Subsidiary General Ledger (SGL) account shall have the same meaning as assigned to it in ‘Subsidiary General Ledger Account: Eligibility Criteria and Operational Guidelines’ published in the Official Gazette on October 01, 2021, vide notification no. IDMD.CDD.S788/11.22.001/2021-22.

(v) When, as and if issued security (commonly known as ‘When Issued security’) shall mean a Government security that has been authorised for issuance/re-issuance but has not yet been issued/re-issued.

(2) Words and expressions, used but not defined in these Directions, shall have the same meaning assigned to them in the Act or the Government Securities Act, 2006.

Section – A: Outright Transactions

3. Eligible participants

The following persons/entities shall be eligible for undertaking secondary market transactions in Government securities:

(1) Any person resident in India, including but not limited to firms, companies, corporate bodies, institutions, State Governments, Union Territories with legislature, provident funds, pension funds, trusts, Hindu Undivided Family and individuals.

(2) Any person resident outside India permitted to invest in securities in terms of the Foreign Exchange Management (Debt Instruments) Regulations, 2019, issued under Foreign Exchange Management Act, 1999.

4. Transactions in the OTC market

(1) Transactions in Government securities shall be undertaken in terms of the following:

(a) A direct member of NDS-OM may undertake transactions on NDS-OM or bilaterally with any other eligible participant.

(b) An indirect member of NDS-OM that maintains a gilt account with a direct member may undertake transactions on NDS-OM through the web access provided by its direct member or bilaterally or by instructing its direct member to place orders on NDS-OM on its behalf.

(c) A participant maintaining a Retail Direct Gilt Account shall undertake transactions on NDS-OM in terms of the provisions of the RBI Retail Direct Scheme announced on July 12, 2021, as amended from time to time.

(d) An individual participant maintaining a demat account opened through a depository participant bank which is a direct member of NDS-OM may undertake transactions on NDS-OM through the depository participant bank. The individual participant may undertake such transactions on NDS-OM through the web access provided by its direct member or bilaterally or by instructing its direct member to place orders on NDS-OM on its behalf.

(e) An individual participant maintaining a demat account with a SEBI-registered depository may undertake transactions on NDS-OM through the Stock Broker Connect facility in terms of the provisions of the Master Direction - Reserve Bank of India (Access Criteria for NDS-OM) Directions, 2025 dated February 07, 2025, as amended from time to time.

(2) A direct member of NDS-OM shall provide access to the web-based NDS-OM module to its constituent gilt account holders (excluding individuals) for undertaking transactions in Government securities. Constituents not desirous of availing this facility may do so by opting out in writing.

(3) A direct member of NDS-OM shall provide access to the web based NDS-OM module to its constituent individual gilt account holder on specific request. A direct member of NDS-OM, which is also a depository participant bank, shall provide access to the web based NDS-OM module to the demat account holder on specific request.

(4) Transactions in Government securities shall be undertaken on price basis or yield basis. Such transactions shall be undertaken for a minimum amount of ₹10,000 (Face Value) and in multiples of ₹10,000 thereafter, or any other amount as may be specified by the Reserve Bank.

(5) The market timings for transactions in Government securities shall be 9:00 AM to 5:00 PM on a Mumbai working day or as specified by the Reserve Bank from time to time.

(6) Government securities (a) contracted for outright purchase; or (b) contracted for purchase or repurchase under a repo transaction including through the Reserve Bank’s Liquidity Adjustment Facility; or (c) contracted for borrowing/due for receipt in a GSL transaction, can be sold subject to the following:

(i) the contract is entered into prior to the sale;

(ii) the contract is with the Reserve Bank or the transaction is guaranteed for settlement by the CCIL; and

(iii) the sale transaction is contracted to settle in the same or a subsequent settlement cycle as the purchase/repurchase/GSL transaction.

Provided that the outright sale of Government securities acquired under repo shall be undertaken only by such entities that are eligible to undertake short sale transactions and in such Government securities that are permitted to be short sold in terms of these Directions.

(7) Government securities allotted in a primary auction can be sold on the day of allotment. The buyer of such Government securities may re-sell the purchased Government securities subject to compliance with para 4(6) above.

(8) Reporting

(a) Transactions in Government securities, other than transactions undertaken on NDS-OM (including using the NDS-OM web module), shall be reported to NDS-OM by both counterparties within 15 minutes of execution (the time when price is agreed).

(b) Bilateral transactions undertaken by an eligible participant accessing NDS-OM indirectly shall be reported by its direct member or by the indirect member using the NDS-OM web module within 15 minutes of execution.

(c) Transactions between a direct member of NDS-OM and its own gilt account holder or between two gilt account holders of the same direct member shall be reported by the direct member and shall be deemed to be reported by both counterparties.

(d) Transactions undertaken by Foreign Portfolio Investors (FPIs) may be reported in terms of the provisions of the Master Direction - Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025 dated January 07, 2025, as amended from time to time.

(9) Eligible participants shall exchange counterparty confirmation for all transactions in Government securities, other than those matched on NDS-OM.

(10) Settlement

(a) All transactions in Government securities shall be settled on a T+1 basis. Any exceptions are required to be specifically permitted by the Reserve Bank. Transactions undertaken by FPIs may be settled on a T+1 or T+2 basis in terms of the provisions of the Master Direction - Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025, dated January 07, 2025, as amended from time to time.

(b) All transactions in Government securities shall be settled on a DvP basis through CCIL or any other clearing agency approved by the Reserve Bank for the purpose. Transactions between a direct member of NDS-OM and its own gilt account holder or between two gilt account holders of the same direct member which are bilaterally negotiated and reported to NDS-OM, may be cleared and settled through the CCIL, on an optional basis.

(c) A direct member of NDS-OM shall be responsible for the settlement of transactions of its gilt account holders and demat account holders, in terms of these Directions.

(d) The securities leg of transactions undertaken by a direct member of NDS-OM shall settle through the SGL account of the direct member. The securities leg of the transactions undertaken by an indirect member shall settle through the CSGL account of its direct member or of the depositories.

(e) The funds leg of transactions undertaken by a direct member of NDS-OM shall settle through the current account of the direct member maintained with the Reserve Bank or through its Designated Settlement Bank. The funds leg of transactions undertaken by an indirect member of NDS-OM shall settle through the current account of its direct member maintained with the Reserve Bank.

5. Transactions on recognised stock exchanges

(1) The market timings for undertaking secondary market transactions in Government securities on recognised stock exchanges shall be as prescribed by SEBI, in consultation with the Reserve Bank. The settlement of transactions shall be as per the instructions issued by SEBI.

(2) Recognised stock exchanges shall furnish returns, documents and other information relating to secondary market transactions in Government securities to the Reserve Bank or any other agency as may be required by the Reserve Bank in the manner and format within the specified timeframe.

Section – B: ‘When Issued’ Transactions

6. Eligible Government securities

New and reissued Government securities issued by the Central Government shall be eligible for ‘When Issued’ transactions if so indicated in the specific auction notification.

7. Eligible participants

(1) Any entity eligible to invest in eligible Government securities shall be eligible to undertake ‘When Issued’ transactions.

(2) Resident individuals, Hindu Undivided Families, Non-Resident Indians, and Overseas Citizens of India may undertake only long positions in the ‘When Issued’ market.

(3) Scheduled Commercial Banks and Standalone Primary Dealers may undertake both long and short positions in the ‘When Issued’ market. Any short ‘net position’ in a Government security held by these entities at the cessation of ‘When Issued’ trading on the date of auction shall be within the applicable limits prescribed for short sale positions in paragraph 13 of these Directions.

(4) All other entities may undertake both long and short positions in the ‘When Issued’ market but shall close their short ‘net position’, if any, by the close of trading on the date of auction of the underlying Government security.

Explanation:

In the context of transactions in a ‘When Issued’ security, ‘net position’ for an entity shall mean the overall position in the security arrived at by reckoning the current investment of that entity in the security, amount of the security allotted to that entity in the auction, and trading positions of the entity in the security including on ‘When Issued’ basis.

8. Limits

(1) The open position limits in the ‘When Issued’ market by an eligible entity shall be as below:

Position Limits in a specific Government security
Categories	Long	Short
Scheduled Commercial Banks and Standalone Primary Dealers	Not exceeding 25 per cent of the notified amount in the auction	Not exceeding 25 per cent of the notified amount in the auction
Other eligible participants		Not exceeding 10 per cent of the notified amount in the auction

(2) Subject to the above limits, an eligible constituent entity maintaining a gilt or a demat account through a direct member of NDS-OM may undertake ‘When Issued’ transactions to the extent permitted by the direct member through whom it settles its transactions.

9. Operational instructions

(1) ‘When Issued’ transactions may commence after the issue/re-issue of the eligible Government security is notified and shall cease at the close of trading on the date of auction of the Government security.

(2) ‘When Issued’ transactions shall be undertaken only on NDS-OM. An existing position in a ‘When Issued’ security may be closed on NDS-OM. Such position may also be closed bilaterally and reported to NDS-OM within 15 minutes of the transaction.

(3) All ‘When Issued’ transactions shall be undertaken on an ‘if’ basis, to be settled if and when the actual Government security is issued. All ‘When Issued’ transactions for all trade dates shall be contracted for settlement on the date of issue of the Government security.

(4) Settlement of ‘When Issued’ transactions shall take place along with the settlement of secondary market transactions on the date of issue/re-issue of the Government security and shall be netted off with trades in the same Government security.

(5) In case an eligible participant is unable to deliver the Government securities sold on a ‘When Issued’ basis to the buyer on the date of issue/re-issue, the transactions shall be settled as per default settlement mechanism of CCIL.

(6) In the event of cancellation of the auction for any reason, all ‘When Issued’ trades shall be deemed null and void ab-initio on grounds of force-majeure.

(7) A direct member of NDS-OM shall be responsible for the reporting and settlement of trades of its constituents.

(8) All ‘When Issued’ transactions shall be subject to concurrent audit to ensure compliance with regulatory requirements. Any violation noticed in this regard shall immediately be reported to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India.

Section – C: ‘Short Sale’ transactions

10. Eligible Government securities

Short sale transactions can be undertaken in Government securities issued by the Central Government, excluding Treasury Bills.

11. Eligible entities

The following entities shall be eligible to undertake short sale transactions:

(1) Scheduled Commercial Banks;

(2) Standalone Primary Dealers;

(3) Urban Cooperative Banks as permitted in terms of the Reserve Bank of India (Urban Co-operative Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025 dated November 28, 2025, as amended from time to time; and

(4) Any other regulated entity with the approval of the respective financial sector regulator.

12. A scheduled commercial bank may treat the sale of a Government security held in its investment portfolio as a short sale (‘notional’ short sale). For the purpose of these Directions, such notional short sales shall be treated as short sale transactions and shall comply with the instructions laid down in these Directions.

13. Limits

(1) The maximum amount (face value) of an eligible Government security that can be short sold by an eligible entity shall be:

(a) Liquid Government security: 2 per cent of the outstanding stock of the Government security, or ₹500 crore, whichever is higher.

(b) Other eligible Government securities: 1 per cent of the outstanding stock of the Government security, or ₹250 crore, whichever is higher.

Explanation:

For the purpose of short sale transactions, liquid Government security shall mean a Government security identified as such and published by the Fixed Income Money Market and Derivatives Association of India (FIMMDA)/ Financial Benchmarks India Limited (FBIL) from time to time.

(2) Subject to the above limits, an eligible constituent entity maintaining a gilt or a demat account through a direct member of NDS-OM may undertake short sale transactions to the extent permitted by the direct member through whom it settles its transactions.

(3) If a Government security ceases to be a liquid Government security, a participant holding a short sale position in the Government security in excess of the short sale limit permitted for other eligible Government securities shall not be required to reduce its short position and can continue to maintain the position till it is covered. Any fresh short sale transaction in these Government securities shall be undertaken within the applicable limits for other eligible Government securities.

14. Operational instructions

(1) Eligible Government securities that are short sold, including notional short sales, shall be invariably delivered on the settlement date. An eligible entity shall meet its delivery obligations through an outright purchase or by purchasing Government securities through the repo market or by borrowing Government securities through a GSL transaction.

Provided that:

(a) Government securities acquired under the Reserve Bank’s Liquidity Adjustment Facility or any other liquidity facility shall not be used for delivery against short sales.

(b) In exceptional situations of market stress, a bank undertaking ‘notional’ short sales may deliver Government securities from its own investment portfolio.

(2) Short sales, including ‘notional’ short sales, shall be covered within a period of three months from the date of transaction (inclusive of the date) by outright purchase of an equivalent amount (face value) of the same Government security, either in the secondary market or in a primary auction, including in the ‘When Issued’ market.

(3) All short sale transactions shall be subject to concurrent audit to ensure compliance with regulatory requirements. Any violation noticed in this regard shall immediately be reported to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India.

15. Reporting and settlement

(1) An eligible entity undertaking short sale transactions and related cover transactions shall tag those transactions on NDS-OM appropriately.

(2) A short sale transaction executed bilaterally shall be reported to NDS-OM within 15 minutes of execution of the trade and shall be settled through CCIL.

(3) A direct member of NDS-OM shall be responsible for the reporting and settlement of short sale transactions undertaken by its constituents.

16. Accounting

(1) A short sale transaction shall be reflected in a Securities Short Sold (SSS) Account, specifically created for this purpose (Annex II for illustration).

(2) A short sale transaction and related cover transaction shall be accounted in the Held For Trading (HFT) category of the investment portfolio and marked to market on a daily basis.

(3) A bank delivering eligible Government securities out of its own portfolio to cover a ‘notional’ short sale shall account for the transaction as an internal borrowing and shall ensure that the Government securities so borrowed are brought back to the same portfolio without any change in book value.

Section – D: Other instructions

17. Obligation to provide information sought by the Reserve Bank

The Reserve Bank may call for any information or statement or seek any clarification, which in the opinion of the Reserve Bank is necessary, from eligible participants involved in secondary market transactions in Government securities. Such eligible participants shall furnish such information, statement, or clarification within such time, and in the manner, as specified by the Reserve Bank, from time to time.

18. Dissemination of data

The Reserve Bank or any other person authorised by the Reserve Bank may publish any anonymised data related to secondary market transactions in Government securities.

19. Default

(1) A failure of settlement of a Government securities transaction on account of insufficiency of funds in the current account of the buyer or insufficiency of Government securities in the SGL / CSGL account of the seller, maintained with the Reserve Bank shall be treated as an instance of ‘SGL bouncing’ in terms of the circular on ‘Imposition of penalty for bouncing of SGL forms’ dated July 14, 2010, as amended from time to time, and will be subject to penal provisions, as specified therein.

(2) CCIL shall report all instances of settlement failures to Public Debt Office, Mumbai, of the Reserve Bank.

20. Conduct

(1) An eligible participant shall comply with the Reserve Bank of India (Prevention of Market Abuse) Directions, 2019, dated March 15, 2019, as amended from time to time.

(2) An eligible participant shall adhere to the code of conduct published by FIMMDA for transacting in Government securities. A demat account holder undertaking transactions in Government securities on NDS-OM shall also adhere to the code of conduct published by FIMMDA.

21. Violation of Directions

In the event of any person or entity violating any provision of these Directions or the provisions of any other applicable law, the Reserve Bank may, in addition to taking any penal or regulatory action in accordance with law, disallow that person or entity from dealing in the secondary market transactions in Government securities for a period not exceeding one month at a time, after providing reasonable opportunity to the person or agency to be heard. Such an action shall be made public by the Reserve Bank.

22. Applicability of other directions, regulations or guidelines

(1) All secondary market transactions in Government securities shall be undertaken in accordance with the Government Securities Act, 2006, and any notifications or rules or regulations issued thereunder.

(2) Any eligible participant undertaking secondary market transactions in Government securities shall also abide by the provisions of any direction, regulation, or guidelines issued by any regulator or other authority, that may be applicable, in respect of secondary market transactions in Government securities provided that such directions, regulations or guidelines do not conflict with these Directions. In case of any conflict, the provisions of these Directions shall prevail.

Annex I

List of circulars superseded

(1) List of circulars superseded vide Master Direction - Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026

(a) IDMC.PDRS.No.PDS.1/03.64.00/2000-01 dated October 06, 2000

(b) IDMC.PDRS No.5039/03.64.00/2001-02 dated May 20, 2002

(d) P.D.O.19.01.02/ 2076 /2002-03 dated November 11, 2002

(e) IDMC.PDRS.No.2896/03/05/00/2002-03 dated January 14, 2003

(f) PDO/SGL/CIRR/ 4899/2002-03 dated March 07, 2003

(g) IDMD.PDRS. 05 /10.02.01/2003-04 dated March 29, 2004

(h) IDMD.PDRS. 01 /10.02.01/2004-05 dated July 23, 2004

(i) IDMD.PDRS./4783/10.02.01/2004-05 dated May 11, 2005

(j) IDMD/PDRS /4777/10.02.01/2004-05 dated May 11, 2005

(k) IDMD.PDRS. 337 /10.02.01/2005-06 dated July 20, 2005

(l) IDMD.No. 766/10.26.65A/2005-06 dated August 22, 2005

(m) IDMD.DOD.No.5985/10.25.6/2007-08 dated June 02, 2008