RBI/2018-19/25
FMRD.DIRD.03/14.03.007/2018-19
July
24, 2018
All participants in the
Government Securities Market
Madam/Sir,
Transactions in the ‘When
Issued’ (WI) market in Central Government Securities
The Statement on Developmental and Regulatory Policies, by the
Reserve Bank on June 06, 2018 proposed to liberalise the eligible
participant base and relax the entity-wise limits for transactions in the
“When Issued” (WI) market in Central Government Securities.
2. Accordingly, a comprehensive
review of the existing guidelines on ‘When Issued’ market has been carried
out and the revised directions (enclosed),
are issued.
3. These directions are issued
under Section 45 W of Chapter III D of the Reserve Bank of India Act, 1934.
4. The directions will come into
effect from the date of this circular.
Yours
faithfully,
(T.
Rabi Sankar)
Chief General Manager
RESERVE
BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
1ST FLOOR, CENTRAL OFFICE, FORT
MUMBAI 400 001
FMRD.DIRD.04/CGM
(TRS)-2018 dated July 24, 2018
When
Issued Transactions (Reserve Bank) Directions, 2018
In exercise of the powers
conferred by section 45W of the Reserve Bank of India Act, 1934 (RBI Act)
and of all the powers enabling it in this behalf, the Reserve Bank of India
(the Reserve Bank) having considered it necessary in public interest and
with a view to regulate and develop the Government securities market of the
country, hereby issues the following directions to all the persons eligible
to participate or transact business in Government securities in India.
1. Short title, commencement and
applicability of the directions
(1) These Directions shall be
called the When Issued Transactions (Reserve Bank) Directions, 2018 and
shall supersede all other instructions/guidelines issued on the subject.
These Directions shall come into force with effect from the date of these
directions.
(2) These Directions shall be
applicable to ‘When Issued’ transactions in Central Government securities.
2. Definitions
(1) In these Directions, unless
the context otherwise requires-
(a) “Scheduled bank” means
a bank included in the second schedule of the Reserve Bank of India Act,
1934.
(b) “Government securities” shall have the meaning assigned in Section 2(f) of the
Government Securities Act, 2006.
(c) "When, as and if issued" (commonly known as ‘When Issued’) security refers
to a security that has been authorized for issuance but not yet actually
issued. When Issued trading takes place between the time a Government
Security is announced for issuance and the time it is actually issued. All
'When Issued' transactions are on an 'if' basis, to be settled if and when
the actual security is issued.
(d) “Date of Auction” means
the date on which the auction for issue of the security that is being
traded on a ‘When Issued’ basis takes place.
(e) “Date of Issue” means
the date on which the security that is being traded on a ‘When Issued’
basis is issued, by the Government.
(f) “Net position” means
the overall position in a security arrived at by reckoning the current
investment, amount allotted in auctions and trading position, on ‘When
Issued’ basis or otherwise, in that security.
(g) The words and expressions
used, but not defined in these directions, shall have the meaning assigned
to them in the Reserve Bank of India Act, 1934, or in any other Master
Circular/Notification/Direction issued by the Reserve Bank, unless anything
is stated by the Reserve Bank to the contrary.
3. Eligible securities
The securities eligible for
‘When Issued’ transactions under these directions shall include:
(1) Both new and reissued
Government securities issued by the Central Government.
(2) Eligibility of an issue for
‘When Issue’ trades would be indicated in the respective specific auction
notification.
4. Eligible participants
(1) The following participants
are eligible to undertake both net long and short position in ‘When Issued’
market for both new and reissued securities under these Directions:
(a) All entities which are
eligible to participate in the primary auction of Central Government
securities.
(b) However, resident
individuals, Hindu Undivided Families (HUF), Non-Resident Indians (NRI) and
Overseas Citizens of India (OCI) are eligible to undertake only long
position in ‘When Issued’ securities.
(c) Entities other than
scheduled commercial banks and Primary Dealers (PDs), shall close their
short positions, if any, by the close of trading on the date of auction of
the underlying Central Government security.
5. Operational instructions
Transactions in a security on a
‘When Issued’ basis shall be undertaken in terms of the following
directions:
(a) When Issued transactions
would commence after the issue of a security is notified by the Central
Government and it would cease at the close of trading on the date of
auction.
(b) All ‘When Issued’
transactions for all trade dates shall be contracted for settlement on the
date of issue.
(c) In the case of reissued
securities, ‘When Issued’ securities shall form a part of the settlement of
the secondary market transaction on the date of issue. At the time of
settlement of secondary market transactions on the date of issue, trades in
the ‘When Issued’ security will be netted off with trades in the existing
security.
(d) In case an entity is unable
to deliver securities sold on a ‘When Issued’ basis to the buyer on the
date of issue, the transaction will be settled as per the default
settlement mechanism of Clearing Corporation of India Limited (CCIL).
(e) Members of the Securities
Settlement Segment of CCIL (hereafter referred to as ‘members’) shall be
responsible for settlements and reporting of trades of their constituent
entities, viz., entities maintaining gilt accounts or demat accounts.
Accordingly, eligible constituent entities shall undertake ‘When Issued’
transactions to the extent permitted by the members through whom they
settle their securities transactions, within the limits prescribed in Para
6 of these directions.
(f) At the cessation of ‘When
Issued’ trading on the date of auction, no entity shall run a short ‘net
position’ in a security in excess of the limits prescribed for short sale
positions in Central Government securities.
(g) In the event of cancellation
of the auction for whatever reason, all ‘When Issued’ trades will be deemed
null and void ab-initio on grounds of force-majeure.
6. Limits
(1) The open position limits in
the ‘When Issued’ market shall be as below:
Position
Limits
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Categories
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Long
|
Short
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PDs and scheduled commercial
banks
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Not exceeding 25% of the
notified amount in the auction
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Not exceeding 25% of the
notified amount in the auction
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Other eligible entities
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Not exceeding 25% of the
notified amount in the auction
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Not exceeding 10% of the
notified amount in the auction (Individuals, HUFs, NRIs and OCIs are not
allowed to take short positions in the ‘When Issued’ market)
|
(2) The earlier requirement that
aggregate net short positions (sum of all net short positions across all
entities) in a new security will be capped at 90% of the notified amount
has now been dispensed with. Aggregate net short positions will not be subject
to any limits.
7. Trading venues
‘When Issued’ transactions shall
be undertaken only on the Negotiated Dealing System-Order Matching (NDS-OM)
platform. However, an existing position in a ‘When Issued’ security may be
closed either on the NDS-OM platform or outside the NDS-OM platform, i.e.,
through Over-the-Counter (OTC) market.
8. Reporting
All OTC When Issued transactions
shall be reported to NDS-OM within 15 minutes of the trade.
9. Internal control
(1) All NDS-OM
members participating in the ‘When Issued’ market are required to have in
place a written policy on ‘When Issued’ trading which should be approved by
the Board of Directors or equivalent body. The policy should lay down the
internal guidelines which should include, inter alia, risk
limits on ‘When Issued’ position (including, in the case of reissued
securities, overall position in the security, i.e., ‘When Issued’ plus the
existing security), an aggregate nominal limit (in terms of Face Value) for
‘When Issued’ and in the case of the reissued securities, ‘When Issued’
plus the existing securities, the internal control arrangements to ensure
adherence to regulatory and internal guidelines, reporting of ‘When Issued’
activity to the top management, procedure to deal with violations, etc. A
system should be in place to detect violations early.
(2) Concurrent auditors should
specifically verify compliance with these instructions and report
violations preferably on the date of trade itself, to the appropriate
internal authority. As a part of their monthly reporting, concurrent
auditors may verify whether the independent back/mid office has taken
cognizance of all such lapses and reported the same within the required
time frame. Any violation of regulatory guidelines noticed in this regard
should immediately be reported to the Public Debt Office (PDO), Mumbai and
Financial Market Regulation Department (FMRD), Reserve Bank of India.
10. The list of previous
circulars issued by the Reserve Bank on ‘When Issued’ transaction in
Central Government securities that are repealed and withdrawn are given
at Annex I hereunder.
(T.
Rabi Sankar)
Chief General Manager
Annex
I
(i) Circular No. IDMD No./3426/11.01.01 (D)/2005-06 dated May 3, 2006.
(ii) Circular No. IDMD No./2130/11.01.01 (D)/2006-07 dated
November 16, 2006.
(iii) Circular No. IDMD.DOD.No.3166/11.01.01(B)/2007-08 dated
January 1, 2008.
(iv) Circular No. FMRD.DIRD.06/14.03.07/2015-16 dated
December 10, 2015.
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