Now, SEBI may get to regulate G-Secs

PALAK SHAH Mumbai | Updated on February 01, 2021

Securities Code Act envisages various norms under one regulator

The Reserve Bank of India (RBI) will have to give up its powers to regulate Government Securities (G-secs), the debt instruments issued by the central and state governments, sources in the know told Business Line. The powers to regulate GSecs will be passed on to SEBI. This is on the back of the budget announcement wherein it has been proposed to merge the Securities Contracts Regulation Act, Depositories Act, and Securities Exchange Board of India Act into a new Securities Code Act (SCA). Currently, there is a turf war between the SEBI and the RBI over regulation of various instruments classified as securities.

RBI to cede control

While regulations of equity cash and derivatives fell under SEBI’s purview, several other financial instruments classified as securities were regulated by RBI. This will now change as the SCA takes shape and even SEBI’s power and accountability will undergo a major makeover, experts said.

G-Secs in the form of GPN (promissory notes), bearer bond, stock and BLA (bond and ledger account) are issued by RBI, while the Agency Banks are presently eligible to issue Relief/Savings Bonds in the form of BLA only. The definition of some of these securities may change.

“The concept of a unified securities law would help in ease of doing business as there will be a single statutory provision to follow. It will also unify the g-sec market more closely with the equity, currency and derivative market,” said Sandeep Parekh, founder, Finsec Law Advisors.

The fine print of the code will be written now after the FM’s announcement.

In July 2020, SEBI Chairman Ajay Tyagi had announced at a public event that issuance of GSecs should follow the stock market model, where companies directly issue shares in the demat account of small investors.

“Bringing government securities too under a uniform securities code and combining all investment asset classes under a single regulator, i.e., SEBI, should go a long way in simplifying the regime for investors, both domestic as well as overseas and avoid any regulatory arbitrage to set in,” said Siddharth Shah, Partner, Khaitan & Co.

Even when bids are received on a stock exchange platform, the RBI issues securities only in a Constituent Subsidiary General Ledger Account (CSGL) of a clearing corporation, which in turn credits the securities to the demat account of the retail investors.

All big banks and Primary dealers have a SGL account with the RBI at Mumbai. Individual traders can open a CSGL account with the RBI and get G-Secs in that account. CSGL is a form of demat account exclusively monitored by the RBI, like the share trading accounts are all monitored by the SEBI.

Published on February 01, 2021

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