The Reserve Bank of India's (RBI) proposed launch of an "anonymous screen-based order matching trading system", as another module on the Negotiated Dealing System (NDS), raises several questions. These questions not only concern governance issues but also the issues pertaining to the existing regulations in the market. This article provides an in-depth understanding on the working of the system along with the grueling concerns that need to be addressed before the actual implementation of the same.

If one reads Sec 2 (J) along with Sec 19 (1) of SCRA, 1956, one will get the feeling that the proposed activity of the RBI requires an approval from the central government (though one may claim it is not a stock exchange) and a gazette notification to that effect (thus, it may have to frame rules to comply the above sections).

Under these circumstances, I feel the RBI may not be comfortable in approaching the central government to apply for the trading platform/stock exchange license. To the best of my knowledge no central bank of any country is running any entity or a stock exchange or an entity in the nature of a stock exchange.

The proposed module in the NDS system will be an anonymous order matching system, wherein the identity of parties will not be revealed at the time of entering the trade. It is not clear whether the identity of the contracting parties will be known to each other post order matching/striking the deal. It is also understood that the settlement of the trades that will be done through this module in NDS, CCIL will become a central counterparty for all the trades and will, thus, be settled through CCIL only and the trades can be done on T+0 or T+1 basis. Initially, the government sector (CG-dated) will be open for trading on this platform. At a later date state government loans and discounted instruments like Treasury Bills will be made available.

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