What changed
RBI issued a formal Market Making Scheme under the Retail Direct Scheme, dated January 4, 2022. It requires Primary Dealers to provide quotes on odd-lot and RFQ segments of NDS-OM for retail investors, with obligations described as 'may' rather than mandatory. PDs shall rely on the KYC verification of RDG account holders done under the retail direct scheme, eliminating duplicate verification.
What it means for you
Banks acting as Primary Dealers are expected to provide two-way quotes for government securities to retail investors, boosting secondary market liquidity. The simplified KYC reduces compliance burden for PDs when dealing with RDG account holders. Monthly switch windows with RBI allow PDs to exchange illiquid/semi-liquid securities acquired from RDG account holders for liquid ones, managing inventory risk.
What you must do
- Ensure your PD desk provides buy/sell quotes on NDS-OM odd-lot and RFQ segments throughout market hours for liquid securities, or as per time slots allocated by the Primary Dealers Association of India.
- Coordinate with Primary Dealers Association of India for time slot allocation if not providing continuous quotes.
- Accept the KYC verification done under the Retail Direct Scheme for RDG account holders; do not re-verify for RFQ transactions.
- Utilize the monthly special switch window with RBI to swap illiquid/semi-liquid securities acquired from RDG account holders for liquid ones.
Who it affects
All Primary Dealers authorized by RBI, Retail Direct Gilt Account holders
What are the key obligations for Primary Dealers under this scheme?
PDs may provide buy/sell quotes on NDS-OM odd-lot and RFQ segments for liquid securities throughout market hours, or as per time slots allocated by the Primary Dealers Association. They must respond to RFQ requests from RDG account holders with market-relevant quotes.
How is KYC simplified for transactions with RDG account holders?
PDs shall rely on the KYC verification done under the Retail Direct Scheme. No additional KYC is required for transacting with RDG account holders on the RFQ segment of NDS-OM, as per Rule 9 of the Prevention of Money-Laundering Rules.
What incentives do Primary Dealers get for fulfilling market making obligations?
PDs get a monthly special switch window with RBI to exchange illiquid/semi-liquid securities acquired from RDG account holders for liquid securities at FBIL/market prices. Successful trades also count toward annual targets for PDs.