The Reserve Bank of India (RBI) has decided to introduce Separate Trading of Registered Interest and Principal of Securities (STRIPS) in all fixed coupon State Government Securities (SGS) having a residual maturity of up to 14 years and a minimum outstanding of ₹1,000 crore as on the day of stripping.
Stripping is a process of converting periodic coupon payments of an existing SGS into tradable zero-coupon securities, which will usually trade in the market at a discount and are redeemed at face value.
The SGS’ will also be eligible for reconstitution, which is the reverse of stripping, where, the Coupon STRIPS and Principal STRIPS are reassembled into the original SGS.
The RBI said stripping of SGS’ will be allowed only if they are reckoned as eligible investment for the purpose of meeting statutory liquidity ratio (SLR) requirements and are transferable.
The introduction of STRIPS will be in addition to stripping/reconstitution already permitted since April 1, 2010, in eligible Central Government dated securities.
RBI said market participants having an SGL (Securities General Ledger) account with it can place requests directly in RBI’s Core Banking Solution (e-Kuber system) for stripping / reconstitution.
Request for stripping / reconstitution by gilt account holders should be placed with their respective custodians maintaining the CSGL (Constituent SGL) account with the Reserve Bank. The custodians, in turn, will place the request on behalf of their constituents in e-Kuber.