RBI Draft Master Direction on Secondary Market Transactions in Government Securities, 2026 – A Complete Overview

The Reserve Bank of India has circulated the draft Master Direction – Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026, with public comments invited up to July 17, 2026. This draft seeks to merge and streamline all existing instructions governing dealings in Government securities in the secondary market into a single, coherent rulebook.

The proposed framework covers:

Who can participate in the secondary market
Rules for over-the-counter (OTC) and exchange-based trades
Reporting norms and settlement procedures
Prudential and operational requirements
Specific regimes for outright trades, ‘When Issued’ transactions, and short sale transactions

It also formally empowers the RBI to seek information, publish anonymised market data, and replaces a long list of earlier circulars, thereby modernising regulation of the Government securities market.

Below is a structured, plain-language walkthrough of the key provisions of the draft Directions, preserving all legal references exactly as notified.

1. Legal Basis and Scope of the Draft Directions

The draft Directions are issued under the authority of section 45W read with section 45U of the Reserve Bank of India Act, 1934. These provisions give the RBI power to regulate transactions in certain instruments, including Government securities.

1.1 Title, Coverage, and Effective Date

The document is titled “Master Direction – Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026”.
It applies to all secondary market transactions in Government securities:
- Conducted in the OTC market, and
- Executed on recognised stock exchanges in India.
The Directions do not cover:
1. Transactions executed by:
  - The Reserve Bank
  - Central Government
  - State Governments
  - Union Territories with legislature
2. Value Free Transfer (VFT) of Government securities undertaken strictly under the “Value Free Transfer (VFT) of Government Securities — Guidelines” dated October 05, 2021, as amended.

Note: The draft Directions are stated to come into force with immediate effect once finally issued.

2. Definitions and Key Concepts

The draft consolidates a wide set of definitions relevant to the Government securities market. Some of the important ones are:

Constituent Subsidiary General Ledger (CSGL) account: Has the meaning given in the notification on ‘Constituents’ Subsidiary General Ledger Account: Eligibility Criteria and Operational Guidelines’ dated October 01, 2021 (notification no. IDMD.CDD.S788/11.22.001/2021-22).
Gilt account and Subsidiary General Ledger (SGL) account: Also as defined in their respective RBI notifications dated October 01, 2021 under the same notification number.
Direct member of NDS-OM: As defined in paragraph 2(d) of the Master Direction – Reserve Bank of India (Access Criteria for NDS-OM) Directions, 2025.
Indirect member of NDS-OM: As defined in paragraph 2(g) of the same Access Criteria Directions.
Negotiated Dealing System-Order Matching (NDS-OM): An Electronic Trading Platform (ETP) authorised by RBI for transactions in Government securities as per Master Direction — Reserve Bank of India (Electronic Trading Platforms) Directions, 2025.

2.2 Market Infrastructure and Participants

Electronic Trading Platforms (ETP): Meaning as per paragraph 2(a)(ii) of the Master Direction — Reserve Bank of India (Electronic Trading Platforms) Directions, 2025.
Depository and Depository Participant: As defined in Section 2(e) and Section 2(g) of the Depositories Act, 1996.
Recognised stock exchange: As per section 2(f) of the Securities Contracts (Regulation) Act, 1956.
Scheduled commercial bank: A bank included in the Second Schedule to the Reserve Bank of India Act, 1934, excluding cooperative banks.
Cooperative bank: As defined in clause (cci) of Section 5 read with section 56 of the Banking Regulation Act, 1949.
Designated Settlement Bank: A bank approved by CCIL whose RBI current account is used by certain participants (not having their own current account with RBI) for:
- Funds settlement of primary and secondary Government securities transactions, and
- Servicing interest and redemption on Government securities they hold.

2.3 Instruments and Transaction Types

Government security: As per Section 2(f) of the Government Securities Act, 2006.
Delivery versus Payment (DvP): Settlement mechanism where transfer of funds and securities occurs simultaneously.
Government Securities Lending (GSL) transaction: As per paragraph 2(1)(f) of the Reserve Bank of India (Government Securities Lending) Directions, 2023.
Held For Trading (HFT): As defined in the Reserve Bank of India (Commercial Banks — Classification, Valuation and Operation of Investment Portfolio) Directions, 2025.
When, as and if issued security (‘When Issued security’): A Government security that has been authorised for issue or re-issue but is not yet actually issued/re-issued.
Short sale: A sale of a Government security that the seller does not own at the time of trade, excluding cases where the security will be in the seller’s possession by the time of settlement (e.g., securities used for intra-day liquidity or lodged as margin).

2.4 Regulatory and Non-Resident Categories

Financial sector regulator: RBI, SEBI, IRDAI, and PFRDA.
Foreign Portfolio Investor (FPI): As per SEBI (Foreign Portfolio Investors) Regulations, 2019.

Words used but not separately defined in the draft Directions carry the meaning assigned under the Reserve Bank of India Act, 1934 or the Government Securities Act, 2006.

3. Outright Secondary Market Transactions (Section A)

3.1 Eligible Participants

The Directions open the secondary Government securities market to:

Residents in India, including:
- Firms, companies, corporate bodies, institutions
- State Governments and Union Territories with legislature
- Provident and pension funds
- Trusts
- Hindu Undivided Families
- Individual residents
Non-residents who are allowed to invest in securities under the Foreign Exchange Management (Debt Instruments) Regulations, 2019 made under the Foreign Exchange Management Act, 1999.

3.2 Transactions in the OTC Market

The draft lays down detailed operational routes for trading in Government securities:

Direct members of NDS-OM:
- May trade on NDS-OM or bilaterally with any eligible counterparty.

RBI’s Draft Master Direction on Secondary Market Government Securities: Consolidated Framework for 2026