India launches consultation on securities lending for government securities
20 February 2023 India
Image: AdobeStock/PhotographrIncognito
The Reserve Bank of India (RBI) has put forward proposals for the extension of securities lending to government securities.
This will allow lending and borrowing in all government securities (G-Secs) issued by the Government of India, the country’s central government, with the exception of treasury bills. These government securities lending (GSL) transactions may be for a minimum of one day and a maximum of 90 days.
Market participants that are authorised to engage in repo transactions against government securities, or that are eligible to engage in short-selling in the Indian market, will be permitted to borrow securities through a GSL transaction.
The RBI specifies that all GSL trades will settle through the Clearing Corporation of India or another RBI-approved central counterparty, with the opening leg of the GSL trade settling on T+0 or T+1. The CCP will determine the level of haircut or margin applicable for the GSL trade.
Trading counterparties must both report trade details to CCIL — or to any other trade repository that has been approved by the RBI — within 15 minutes of execution, or the trade may be reported by the electronic platform used to execute the trade.
On the basis of this reporting, RBI — and other RBI-approved entities — may publish anonymised data relating to GSL trading in the Indian market.
Trading parties will typically employ a standard bilateral master GSL, as approved by the Fixed Income Money Market and Derivatives Association of India, as contract documentation for the loan transaction.
Reflecting on this development, the RBI explains that “a well-functioning market for securities lending and borrowing will add depth and liquidity to the Government securities market, aiding efficient price discovery.”
With this in mind, it plans to introduce lending and borrowing in G-Secs that will complement the current market for ‘special repo’.
The proposals, which have been submitted to the market for consultation, refer to loan trades conducted OTC between lender and borrower — or their relevant lending intermediaries — without an obligation to execute the trade via a stock exchange SLB segment.
The RBI indicates that GSL trades may be conducted by any mutually-agreed trading process, including bilateral or multilateral arrangements, quote-driven or order-driven, which may or may not be anonymous.
This will allow lending and borrowing in all government securities (G-Secs) issued by the Government of India, the country’s central government, with the exception of treasury bills. These government securities lending (GSL) transactions may be for a minimum of one day and a maximum of 90 days.
Market participants that are authorised to engage in repo transactions against government securities, or that are eligible to engage in short-selling in the Indian market, will be permitted to borrow securities through a GSL transaction.
The RBI specifies that all GSL trades will settle through the Clearing Corporation of India or another RBI-approved central counterparty, with the opening leg of the GSL trade settling on T+0 or T+1. The CCP will determine the level of haircut or margin applicable for the GSL trade.
Trading counterparties must both report trade details to CCIL — or to any other trade repository that has been approved by the RBI — within 15 minutes of execution, or the trade may be reported by the electronic platform used to execute the trade.
On the basis of this reporting, RBI — and other RBI-approved entities — may publish anonymised data relating to GSL trading in the Indian market.
Trading parties will typically employ a standard bilateral master GSL, as approved by the Fixed Income Money Market and Derivatives Association of India, as contract documentation for the loan transaction.
Reflecting on this development, the RBI explains that “a well-functioning market for securities lending and borrowing will add depth and liquidity to the Government securities market, aiding efficient price discovery.”
With this in mind, it plans to introduce lending and borrowing in G-Secs that will complement the current market for ‘special repo’.
The proposals, which have been submitted to the market for consultation, refer to loan trades conducted OTC between lender and borrower — or their relevant lending intermediaries — without an obligation to execute the trade via a stock exchange SLB segment.
The RBI indicates that GSL trades may be conducted by any mutually-agreed trading process, including bilateral or multilateral arrangements, quote-driven or order-driven, which may or may not be anonymous.
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