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Tuesday, May 21, 2002

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RBI bans physical deals with brokers

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MUMBAI, May 20

THE Reserve Bank of India today banned all transactions in physical form with brokers by RBI regulated entities, with immediate effect.

In a circular today, the central bank said that "no further transactions by a regulated entity should be undertaken in physical form with any broker, with immediate effect.''

All entities regulated by RBI (including financial institutions, primary dealers, co-operative banks, RRBs, local area banks, non-banking financial companies) should necessarily hold their investments in Government securities either in SGL or CSGL and SCHIL or in a dematerialised account with depositories, the circular stated.

The RBI said in the light of recent fraudulent transactions in the guise of Government securities transactions in physical format by a few co-operative banks with the help of some broker entities, it has been decided to accelerate measures under contemplation for further reducing the scope of trading in physical form.

Some of the proposed measures include - only one CSGL or demat account can be opened by any entity and in case the CSGL accounts are opened with a scheduled commercial bank or a state co-operative bank, the account holder has to open a designated funds account (for all CSGL related transactions) with the same bank.

The circular said that in case a CSGL account is opened with any of the non-banking institutions indicated, the particulars of the designated funds account should be intimated to that institution.

Entities maintaining CSGL or designated funds accounts will be required to ensure availability of clear funds in the designated funds account for purchases and of securities in the CSGL account for sales before putting through the transactions.

The central bank said that a specific time-table was being separately indicated for each category of regulated entities to comply with these guidelines.

According to the RBI, 99 per cent of the trading of government securities takes place through SGL accounts with RBI for which delivery versus payment (DVP) system ensures simultaneous transfer of securities against funds. Of the new issuances in 2001-02 of government securities, 99.9 per cent were in SGL form.

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