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Most trading platforms have now migrated to electronic mode. This has occurred in the trading of Government securities (G-Secs) as well. The G-Secs are issued in the primary market and traded in the secondary market electronically. For this, the RBI has created the Negotiated Dealing System (NDS) as an electronic platform in 2002 for dealing in government securities.
Securities of the Central Government -both bonds and treasury bills and the State Development Loans are auctioned using the NDS platform.
Functions of Negotiated Dealing System
The NDS facilitates members to submit bids for government securities electronically. These bids for the purchase of government securities can be made when the RBI conduct auctions for them. The auction process take place in the primary market using the NDS platform. Participants are primary dealers, commercial banks etc.
In the secondary market (market for trading the already issued G-Secs), the NDS facilitates the settlement of transactions in G-Secs. Here, it provides an interface to the Public Debt Office, RBI, Mumbai for the settlement of transactions conducted in the secondary market. Secondary market trading in Government securities mostly happen over-the-counter (OTC).
The Negotiated Dealing System (NDS) has thus two modules – one for the primary market and the other for the secondary market.
Membership in NDS
Membership to the NDS is restricted to members holding SGL and/or Current Account with the RBI, Mumbai.
Secondary market trading is vital to give liquidity to Government Securities. For enhancing secondary market activity in G-Sec segment, the RBI launched Negotiated Dealing System-Order Matching system (NDS-OM) in 2005. The NDS-OM is a screen based electronic anonymous order matching system for secondary market trading in Government securities.
This is an order driven electronic system, where the participants can trade anonymously by placing their orders on the system or accepting the orders already placed by other participants. The Clearing Corporation of India on behalf of the RBI operates the NDS-OM.
The NDS-OM brings transparency in secondary market transactions in Government securities as there is anonymity about the traders who offer trading. Members can place bids (buy orders) and offers (sell orders) directly on the NDS-OM screen. Being order driven, the system matches bids and offers on price/ time priority.