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The Reserve Bank of India introduces a framework for Government Securities Lending (GSL) transactions. These directions apply to all GSL transactions in Over-the-Counter markets. Eligible participants include entities authorized to undertake repo or short sale transactions in Government securities. The minimum tenor for a transaction is one day. All trades must settle on a Delivery versus Delivery basis through an approved central counterparty. Participants must report trades to the Clearing Corporation of India Ltd. within 15 minutes of execution. Borrowed securities may be sold, used for repo, or placed as collateral. The directions also specify accounting guidelines, Statutory Liquidity Ratio treatment, and documentation requirements for market participants.
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RBI/2023-24/97 FMRD.DIRD.No.05/14.03.061/2023-2024 December 27, 2023
All participants in Government Securities market
Madam/Sir,
Reserve Bank of India (Government Securities Lending) Directions, 2023
Please refer to paragraph 1 of the Statement on Developmental and Regulatory Policies, issued as a part of the Bi-monthly Monetary Policy Statement for 2022-23 dated February 08, 2023 on introduction of Securities Lending and Borrowing in Government Securities. In pursuance of the announcement, the Draft Reserve Bank of India (Government Securities Lending) Directions, 2023 were placed on the Reserve Bank’s website, on February 17, 2023, to invite comments from banks, market participants and other interested parties.
Based on the comments received, the Directions have been finalized and are being issued herewith.
These Directions have been issued in exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934 read with section 45U of the Act and of all the powers enabling it in this behalf.
These Directions shall come into immediate effect.
Yours faithfully,
(Dimple Bhandia) Chief General Manager
RESERVE BANK OF INDIA FINANCIAL MARKETS REGULATION DEPARTMENT 9th FLOOR, CENTRAL OFFICE, FORT MUMBAI – 400 001
Notification No: FMRD.DIRD.No.06/14.03.061/2023-2024 dated December 27, 2023
Reserve Bank of India (Government Securities Lending) Directions, 2023
In exercise of the powers conferred under section 45-W of the Reserve Bank of India Act, 1934 (hereinafter called ‘the Act’) read with section 45-U of the Act, the Reserve Bank of India (hereinafter called the ‘Reserve Bank’) hereby issues the following Directions to all agencies dealing in Government securities.
(1) These Directions shall be called as the Reserve Bank of India (Government Securities Lending) Directions, 2023 and shall come into effect from December 27, 2023
(2) These Directions shall be applicable to all Government securities lending transactions, undertaken in Over-the-Counter markets.
(1) In these Directions, unless the context otherwise requires:
“Central Counterparty” means a system provider, who by way of novation interposes between system participants in the transactions admitted for settlement, thereby becoming the buyer to every seller and the seller to every buyer, for the purpose of effecting settlement of their transactions.
“Delivery versus Delivery” means a settlement mechanism which stipulates that transfer of securities from the borrower of securities is made simultaneously with the transfer of securities by the lender of securities.
“Electronic Trading Platform (ETP)” means an electronic system as defined under section 2(1)(iii) of the Electronic Trading Platform (Reserve Bank) Directions, 2018.
“Exchange” means a recognized stock exchange as defined under section 2(f) of the Securities Contracts (Regulation) Act, 1956.
“Government Security” means a security as defined under section 2(f) of the Government Securities Act, 2006.
“Government Securities Lending (GSL) transaction” refers to dealing in Government securities involving lending of eligible Government securities, for a fee, by the owner of those securities (the lender) to a borrower, on the collateral of other Government securities, for a specified period of time, with an agreement that the borrower shall return to the lender the security borrowed and the latter shall return the security received as collateral to the former at the end of the agreed period.
“Government Security Lending Fee (GSL Fee)” means the fee paid by the borrower to the lender of the Government security as mutually agreed between them for undertaking the transaction.
“Over-the-Counter (OTC) Markets” refers to markets where transactions are undertaken in any manner other than on exchanges and shall include those executed on ETPs.
(2) Words and expressions used but not defined in these Directions, shall have the meaning assigned to them in the Reserve Bank of India Act, 1934.
(1) Government securities issued by the Central Government excluding Treasury Bills shall be eligible for lending/borrowing under a GSL transaction. Securities obtained under a repo transaction, including through Reserve Bank’s Liquidity Adjustment Facility, or borrowed under another GSL transaction shall also be eligible to be lent under a GSL transaction.
(2) Government securities issued by the Central Government (including Treasury Bills) and the State Governments shall be eligible for placing as collateral under a GSL transaction. Securities obtained under a repo transaction, including through Reserve Bank’s Liquidity Adjustment Facility, or borrowed under another GSL transaction shall also be eligible to be placed as collateral under a GSL transaction.
(1) The following entities are eligible to participate in GSL transactions as lenders of securities:
(2) Entities that are eligible to undertake short sale transactions in terms of Short Sale (Reserve Bank) Directions, 2018 dated July 25, 2018, as amended from time to time, shall be eligible to borrow securities under a GSL transaction.
The minimum tenor of a GSL transaction shall be one day and the maximum tenor shall be the maximum period prescribed to cover short sales in terms of the Directions on ‘Secondary Market Transactions in Government Securities – Short Selling’ dated July 25, 2018, as amended from time to time.
GSL transactions may be contracted using any mutually agreed trading process/platform, including but not limited to, bilateral or multilateral, quote driven or order driven process, anonymous or otherwise.
(1) All GSL transactions shall settle on a Delivery versus Delivery basis.
(2) The first leg of all GSL transactions shall settle either on a T+0 or T+1 basis.
(3) All GSL transactions shall settle through Clearing Corporation of India Ltd. (CCIL) or any other central counterparty or clearing arrangement approved by the Reserve Bank for the purpose.
(1) Securities/collateral under a GSL transaction shall be valued transparently at prevailing market prices in the first leg of the transaction.
(2) Haircut/ margins relating to GSL transactions shall be decided by the central counterparty settling the transactions.
(1) Securities borrowed under a GSL transaction may be:
(2) Securities placed as collateral may be substituted by the borrower with other eligible securities in terms of the rules of the central counterparty.
(1) All GSL transactions shall be reported to the CCIL, or any other agency approved by the Reserve Bank for the purpose, within 15 minutes of execution, by both counterparties to the transaction or by the ETP operator concerned, as the case may be.
(2) Any misreporting or multiple reporting of the same OTC market deal by a counterparty shall be immediately brought to the notice of CCIL or the agency referred to in para 10(1) above, as the case may be.
The Reserve Bank may call for any information or statement or seek any clarification, which in the opinion of the Reserve Bank is necessary, from persons or agencies dealing in GSL transactions, including eligible participants and ETP operators, and such persons/agencies shall furnish such information, statement or clarification within such time as specified by the Reserve Bank.
