What changed
Previously, both the sale and cover legs of short-sale transactions in government securities had to be executed on the NDS-OM platform. Now, only the sale leg must be on NDS-OM; the cover leg can be done outside NDS-OM, such as through telephone deals or primary market purchases.
What it means for you
Banks and primary dealers gain more flexibility to manage short positions, potentially reducing transaction costs and improving liquidity in the G-sec market. However, they must strengthen internal controls to ensure short-sale limits are not breached, as cover operations can now occur across multiple venues.
What you must do
- Update internal policies to reflect that cover leg of short sales can be executed outside NDS-OM, including telephone market or primary issuance.
- Enhance monitoring systems to track short-sale limits across both NDS-OM and non-NDS-OM cover transactions.
- Train treasury and dealing teams on the revised guidelines to ensure compliance with sale leg restrictions.
- Review and document internal controls to prevent limit breaches given the expanded execution venues.
Who it affects
All Scheduled Commercial Banks (except RRBs), Primary Dealers
Can we now execute the entire short-sale transaction outside NDS-OM?
No. Only the cover leg (buying back to close the short position) can be done outside NDS-OM. The initial sale leg must still be executed on the NDS-OM platform.
What are the permissible venues for the cover leg?
The cover leg can be done on NDS-OM, outside NDS-OM (e.g., telephone market), or through purchases in primary issuance of government securities.
Do the earlier short-sale limits and time periods still apply?
Yes. All other terms and conditions from previous circulars, including the five-trading-day limit for short positions, remain unchanged.