Brokers must set up separate units to participate in NDS-OM, says SEBI

The Securities and Exchange Board of India (SEBI) has permitted SEBI-registered stock brokers to trade in government securities through the Negotiated Dealing System-Order Matching (NDS-OM), provided they establish a separate business unit (SBU).

The move follows the Reserve Bank of India’s decision to allow non-bank brokers to access the platform to facilitate retail participation.

NDS-OM is an electronic order-matching system used for secondary market trading in government securities.

In a circular issued on February 11, SEBI outlined guidelines to ensure that the activities of stock brokers and their participation in NDS-OM remain segregated and ring-fenced.

Also read: SEBI proposes stricter governance norms for listed firms, seeks public feedback

Key safeguards:

• Stock brokers must keep NDS-OM activities separate from their securities market operations and maintain an arm’s-length relationship.
• The SBU should be solely engaged in NDS-OM transactions.
• A separate account must be maintained for the SBU.
• The SBU’s net worth must be kept distinct from the broker’s securities market net worth, ensuring compliance with capital requirements.

Additionally, SEBI clarified that since the SBU falls under a different regulatory framework, SEBI’s investor protection fund (IPF) and grievance redressal mechanism will not apply to investors using these services.