RBI Releases Draft Master Direction on Secondary Market Transactions in Government Securities, 2026

Government securities form the backbone of India's debt market, and the rules governing secondary market trading have been scattered across 36 circulars spanning two and a half decades — the oldest dating to October 2000. The framework has three layers: 23 circulars directly governing outright OTC transactions, NDS-OM access, and settlement; four circulars that were already consolidated into the standalone When Issued Transactions (Reserve Bank) Directions, 2018; and nine circulars consolidated into the Short Sale (Reserve Bank) Directions, 2018. The new Master Direction supersedes all 36 — including both the 2018 standalone Directions — in one document.

On June 25, 2026, the RBI's Financial Markets Regulation Department released a draft Master Direction — Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026 — that pulls all of this together into a single, structured rulebook. According to the accompanying press release, the stated objective is to enhance clarity, streamline compliance, and provide a single point of reference for everyone trading in this market, from large scheduled commercial banks down to individual retail investors using the RBI Retail Direct or Stock Broker Connect channels.

This is a draft open for public comment. Responses from banks, market participants, and investors are due by July 17, 2026. Feedback may be sent by post to: The Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400001. Email submissions should carry the subject line: "Feedback on draft Master Direction – Reserve Bank of India (Secondary Market Transactions in Government Securities) Directions, 2026". Until finalised and notified, the 36 circulars listed in Annex-I of the draft remain in force.

Scope, Applicability and Commencement

The draft Directions apply to all secondary market transactions in Government securities undertaken either in the over-the-counter (OTC) market or on recognised stock exchanges in India. Two categories of transactions are specifically excluded: transactions undertaken by the RBI, Central Government, or State Governments/Union Territories with legislature; and Value Free Transfers of Government securities carried out under the existing VFT Guidelines dated October 5, 2021.

Key Definitions Under the RBI Draft G-Sec Directions 2026

The draft consolidates definitions used across the earlier circulars. A few are worth flagging for practitioners:

Section A: Outright Transactions

Eligible Participants

Eligibility is drawn broadly. Any person resident in India — including firms, companies, corporate bodies, institutions, State/UT governments, provident and pension funds, trusts, HUFs, and individuals — may transact. Non-residents permitted to invest under the Foreign Exchange Management (Debt Instruments) Regulations, 2019 are also eligible.

Access Routes into NDS-OM

The draft sets out five distinct access routes depending on the type of participant:

Direct members must offer web-based NDS-OM access to non-individual constituent gilt account holders by default (with an opt-out option) and to individual gilt/demat account holders on specific request.

Trade Size, Timing and Conditional Sales

Securities contracted for outright purchase, contracted under a repo (including via the RBI's Liquidity Adjustment Facility), or due for receipt under a GSL transaction can be on-sold before actual receipt — but only if the original contract pre-dates the sale, is with RBI or CCIL-guaranteed, and the on-sale settles in the same or a later cycle. Outright sale of repo-acquired securities is permitted only for entities otherwise eligible for short sales, and only in securities permitted to be short sold.

Reporting, Confirmation and Settlement

All trades must settle on a T+1 basis, except where RBI specifically permits otherwise; FPI trades may settle on T+1 or T+2 per the Master Direction on Non-resident Investment in Debt Instruments, 2025. Settlement of the funds leg runs through DvP via CCIL or another RBI-approved clearing agency. The securities leg settles through the direct member's SGL account (or the CSGL account of the direct member/depository for indirect members); the funds leg settles through the direct member's RBI current account or Designated Settlement Bank.

Transactions on Recognised Stock Exchanges

Market timings and settlement for exchange-traded Government securities follow SEBI instructions, issued in consultation with RBI. Exchanges must furnish returns and information on these transactions to RBI as and when required.

Section B: 'When Issued' Transactions

'When Issued' (WI) trading lets the market price a security before it is actually issued — provided the relevant auction notification specifically permits it. The position rules differ sharply by participant type.

WI trading commences once the relevant auction is notified and ceases at close of trading on the auction date itself. New WI transactions must be executed on NDS-OM; however, an existing WI position may also be closed bilaterally, provided the bilateral trade is reported to NDS-OM within 15 minutes of execution. All WI trades are contracted on an 'if' basis — they settle only if and when the Government security is actually issued, with all trade dates contracted for settlement on the date of issue/re-issue, netting off against secondary market trades in the same security on that date.

If a participant is unable to deliver Government securities sold on a WI basis on the issue date, settlement follows CCIL's default settlement mechanism. If the underlying auction is cancelled for any reason, all WI trades are treated as void ab initio on grounds of force majeure. WI transactions are subject to concurrent audit, with any violation immediately reportable to the Chief General Manager, Financial Markets Regulation Department, Reserve Bank of India.

Section C: Short Sale Transactions

Short sales are permitted only in Central Government securities, excluding Treasury Bills. Eligible entities are Scheduled Commercial Banks, Standalone Primary Dealers, Urban Cooperative Banks (as permitted under their November 28, 2025 investment portfolio directions), and any other regulated entity approved by its financial sector regulator. SCBs may also treat a sale out of their own existing investment portfolio as a "notional" short sale, subject to the same compliance regime.

If a security stops being classified as "liquid," an existing short position above the lower limit need not be unwound — it can be carried until covered — but any fresh short sale must respect the tighter "other securities" limit.

Short sales — including notional ones — must be covered within three months of the transaction date (inclusive). Bilateral short sale trades must be reported to NDS-OM within 15 minutes and settled through CCIL; direct members are responsible for reporting and settlement of their constituents' short sale activity. All such transactions are subject to concurrent audit. For accounting, every short sale is recorded in a dedicated Securities Short Sold (SSS) account, classified under the Held For Trading (HFT) category, and marked to market daily. Where a bank delivers from its own portfolio to cover a notional short sale, this is booked as an internal borrowing, with the security required to return to the same portfolio at unchanged book value.

Conduct, Default, Violations and Data Reporting Obligations

• Information requests: RBI may call for any information, statement, or clarification from eligible participants, to be furnished within the specified time and manner.
• Data dissemination: RBI (or any authorised person) may publish anonymised data on secondary market G-Sec transactions.
• Default ("SGL bouncing"): Settlement failures due to insufficient funds or insufficient securities in the SGL/CSGL account are treated as SGL bouncing under the July 14, 2010 penalty circular, with CCIL reporting all such failures to the Public Debt Office, Mumbai.
• Conduct: Participants must comply with the Prevention of Market Abuse Directions, 2019 and the FIMMDA code of conduct (the latter also applies to demat account holders trading on NDS-OM).
• Violations: RBI may bar a violating person/entity from secondary market G-Sec dealing for up to one month at a time, after a hearing, and will make such action public.
• Overriding effect: The Government Securities Act, 2006 governs throughout; where any other regulator's directions conflict with these Directions, these Directions prevail.

What Changes From the Earlier Framework

Note: Based on the draft text and the accompanying press release, the exercise is presented by RBI primarily as a consolidation of existing instructions rather than a wholesale rewrite of substantive limits (such as short sale caps or WI position limits). Market participants should compare clause-by-clause against the specific superseded circular relevant to their operations to confirm whether any individual parameter has shifted.

Compliance Checklist

What This Consolidation Means for Treasury and Compliance Teams

Treasury and compliance teams at banks, primary dealers, and depository participants have, for years, maintained working knowledge across a patchwork of circulars dating back to 2000 — several of which amended or partially overlapped each other, and none of which were written to be read together. Consolidating outright transactions, 'When Issued' trading, and short sales into one Master Direction with clearly numbered sections is a genuine usability improvement, even where the underlying limits and mechanics remain unchanged. The compliance benefit is most immediately felt by teams who maintain internal SOPs and concurrent audit templates: they will have one canonical clause number to cite rather than a chain of partially-superseded references.

The practical compliance challenge will be transitional, not substantive. Internal policy documents, system validation rules, and audit checklists at REs are likely to reference the old circular numbers directly. Once this Master Direction is finalised, compliance and legal teams will need to re-map every internal reference — including in concurrent audit templates for WI and short sale transactions — to the new consolidated clause numbers, even if the actual position limits and reporting timelines stay the same.

One area worth close reading once the final version lands is the short sale "notional" treatment for SCBs and the carve-out allowing delivery from a bank's own portfolio "in exceptional situations of market stress." The draft provides no further definition of what constitutes such stress. Any RE invoking this carve-out should maintain contemporaneous board or ALCO-level documentation establishing that stress conditions existed at the time — given the concurrent audit requirement on all short sale transactions, undocumented invocations are a significant audit exposure.

Looking ahead, this kind of consolidation exercise is consistent with RBI's broader push toward simplified, single-reference regulatory frameworks across its various functions. Market participants should also watch for parallel consolidation in adjacent areas — such as NDS-OM access criteria and ETP authorisation — since this draft cross-references both extensively and any future updates there will have a direct bearing on how this Master Direction operates in practice.