What changed
RBI observed entities relying on secondary market settlement receivables to fund primary auction obligations, causing delays. The circular clarifies that primary auction settlement is independent and must be funded separately. Same-day sale of allotted stock is for distribution, not to meet primary settlement fund requirements.
What it means for you
Banks and primary dealers must ensure sufficient funds in their RBI current account by 3:00 PM on auction settlement days. Shortages will be treated as SGL bouncing, attracting penal provisions. This tightens liquidity management for primary market participants.
What you must do
- Arrange separate funding for primary auction settlements, not relying on secondary market receivables.
- Ensure sufficient funds in your RBI current account by 3:00 PM on auction settlement days.
- Review internal processes to avoid SGL bouncing and associated penalties.
- Educate treasury teams on the independence of primary and secondary market settlements.
Who it affects
All banks participating in primary auctions, Primary dealers, Treasury and settlement operations teams
What happens if we fail to fund the primary auction settlement by 3:00 PM?
The shortage will be treated as an instance of 'SGL bouncing' and will be subject to applicable penal provisions as per RBI norms.
Can we use proceeds from same-day sale of allotted stock to fund the primary auction settlement?
No. The same-day sale facility is meant for distribution and risk minimization, not to meet primary settlement fund requirements. Primary auction settlement must be funded separately.
When does this circular take effect?
The directive is effective from September 22, 2008.