The Negotiated Dealing System (NDS) is an electronic trading platform operated by the Reserve Bank of India (RBI) to facilitate the issuing and exchange of government securities and other types of money market instruments. The goal of the NDS is to enhance market efficiency by reducing reliance on telephone orders and manual paperwork, while also increasing transparency for all market participants.
Key Takeaways
- The Negotiated Dealing System (NDS) facilitates trading and dealing in Indian government securities.
- The NDS Order Matching system (NDS-OM) includes varied levels of market participation.
- Each member type has access to specific modules within the NDS-OM system.
Understanding the Negotiated Dealing System
Introduced in February 2002, the NDS was developed to enhance the dealings of fixed-income investments. While the RBI owns the NDS, it is administered by the Clearing Corporation of India Ltd. (CCIL). Before the NDS, India’s government securities market operated mainly through telephone-based mechanisms, requiring physical Subsidiary General Ledger transfer forms and checks for fund settlement with the RBI. These cumbersome processes led to the NDS’s development and implementation.
In August 2005, the RBI launched the Negotiated Dealing System - Order Matching system (NDS-OM), an electronic, screen-based, anonymous, order-driven trading system for government securities. This system aims to bring transparency to secondary market transactions and allows members to place bids and offers on the NDS-OM platform directly.
How the NDS Works
There are two types of NDS-OM members: Direct Members and Indirect Members:
- Direct Members: These members have current accounts with the RBI and can directly settle trades on the NDS-OM.
- Indirect Members: These members do not possess current accounts with the RBI and must settle trades through Direct Members. This category often includes many foreign institutional investors, while resident entities may have direct access.
Many other countries employ similar electronic systems for managing government securities and related instruments, aiming to increase transparency and reduce costs.
NDS Modules
The Negotiated Dealing System comprises two core modules tailored for different types of member institutions:
- Primary Market Module: The RBI uses this module for auctioning federal and state securities, as well as treasury bills. The platform enables participants to electronically submit their bids in primary auctions and receive allotment reports.
- Secondary Market Module: While over-the-counter trading often occurs over the phone, it is compulsory to report these trades using the NDS secondary market module. The data is then sent to the Clearing Corporation of India Ltd. for clearing and settlement, preventing the need for paper-based processes.
By leveraging the power of automation and transparency, the Negotiated Dealing System revolutionizes how government securities are traded in India.
Related Terms: fixed-income investments, cash settlement, order matching system, primary market, secondary market.
References
- Reserve Bank of India. “Retail Participation by Demat Account Holders in the Government Securities Market: Access to NDS-OM Platform”.
- CCIL. “Milestones”.
- Reserve Bank of India. “Negotiated Dealing System (NDS)”.
