What changed
The maximum short sale period in G-Secs was extended from five trading days to three months (including trade day), effective February 1, 2012. Short positions can now be covered not only by outright purchase of the same security but also via long positions in the When Issued market or allotment in primary auctions. Participants must tag short sales and cover transactions on NDS-OM, and submit monthly reports certified by concurrent/internal auditors.
What it means for you
Banks and primary dealers get greater flexibility to manage short positions over a longer horizon, aligning with market practices. However, stricter tagging, reconciliation, and reporting requirements increase operational and compliance burdens. The move aims to deepen the G-Sec market while curbing misuse through enhanced transparency and audit checks.
What you must do
- Update internal systems to tag short sale and cover transactions on NDS-OM appropriately.
- Ensure short positions are covered within three months via outright purchase, WI market, or primary auction allotment.
- Reconcile NDS-OM stock balances with SGL/CSGL/IDL accounts daily, with concurrent auditor verification.
- Submit monthly short sale activity reports (certified by concurrent/internal auditors) to RBI Financial Markets Department.
- Review systems and controls to prevent market abuse and report any suspected cases to RBI.
Who it affects
All market participants dealing in government securities, Banks and primary dealers, Concurrent and internal auditors of these entities
What is the new maximum period for maintaining a short position in G-Secs?
The period has been extended from five trading days to three months (including the trade day), effective February 1, 2012.
How can short positions be covered under the revised guidelines?
Short positions can be covered by outright purchase of the same security, or by taking a long position in the When Issued market, or through allotment in the primary auction.
What reporting is required for short selling activities?
Participants must submit a monthly report on short selling activity, certified by concurrent/internal auditors, to RBI's Financial Markets Department in the specified format.