One Rulebook for the G-Sec Market: Decoding the RBI's 2026 Draft Master Direction on Secondary Market Transactions in Government Securities

What the RBI has put out

For the first time, India has a single, principle-organised rulebook for trading Government securities after issuance, sitting alongside the separate primary issuance framework and the FEMA-anchored non-resident regime.

The instrument runs to twenty-two operative paragraphs, two annexures, and four sections labelled A through D. Section A handles outright trades. Section B governs When Issued. Section C codifies short sale. Section D covers reporting obligations, defaults, conduct, and the Reserve Bank's power to disallow a participant from the market for up to a month at a time.

It is, in form, a consolidation. The substance is also a clean-up. The Reserve Bank's previous answer to a question like "is my notional short sale by a scheduled commercial bank against its own portfolio compliant" was a chain of circulars stretching across two decades. From the date this Direction is finalised, the answer is in one document, one paragraph (12), one sentence.

The draft is open for industry comment. There is no consultation deadline printed on the document itself. Once finalised, the supersession schedule in Annex I retires nearly the entire body of operational guidance that the Financial Markets Regulation Department has built up on the topic since the early 2000s.

Why now: a rulebook stitched together from thirty-six circulars

The G-Sec market sits at the centre of three different regulatory ecosystems. The Reserve Bank manages the public debt under the Government Securities Act, 2006. SEBI regulates stock exchanges, including the exchange platforms on which G-Secs now trade. And the Foreign Exchange Management Act, 1999 governs the gate through which foreign capital enters the asset class. The operational rules of secondary market trading have always sat awkwardly across that triangle.

What the Direction does is gather those rules, scattered through three decades of FMRD and IDMD circulars, and write them down once. Annex I lists twenty-three primary circulars superseded by the consolidation, nine more retired by the absorption of the 2018 Short Sale Direction, and four retired by the When Issued absorption. For a participant, that means the citation chain for any single rule drops from "as amended by IDMD/PDRS/4783/10.02.01/2004-05 dated May 11, 2005 read with IDMD.DOD.No.5985/10.25.6/2007-08 dated June 02, 2008" to "paragraph 4(7) of the 2026 Direction." It is the kind of clean-up that quietly changes how compliance teams structure their playbooks.

For a complete picture of how the surrounding rulebook came together over the last quarter-century, our Government Securities & Money Market: Complete Timeline traces every major Reserve Bank intervention, from the dematerialisation of SGL through the launch of NDS-OM and the opening of the Retail Direct Scheme.

Section 45W of the RBI Act, scope, and what stays out

The Direction is issued under Section 45W of the RBI Act, 1934, read with Section 45U. Section 45W is the Reserve Bank's general regulation-making power for interest rate, foreign exchange, money market and derivative instruments. Read together with 45U's defined-terms apparatus, it gives the RBI room to write a single instrument that binds every participant in the secondary G-Sec market.

The applicability clause does two things that matter. First, it covers both the OTC market and recognised stock exchanges. The OTC label, as defined in paragraph 2(1)(q), itself includes trades done on electronic trading platforms (ETPs). So an SCB transacting bilaterally with another bank, a primary dealer placing orders on NDS-OM, and a retail individual buying through Stock Broker Connect on an exchange are all inside the same rulebook.

Three classes of activity remain outside:

• Reserve Bank and government-side transactions. Trades by the RBI itself, the Central Government, State Governments, and Union Territories with legislature are explicitly excluded. The RBI's own market operations sit on the other side of the regulatory wall.
• Value Free Transfers of Government securities, which are governed by the standalone VFT Guidelines dated October 5, 2021, as amended. A VFT (broadly, a transfer not effected for value, used in operations like custody migration or merger restructuring) does not get pulled into the trading rulebook.
• The conflict carve-out in paragraph 22. Where the Direction overlaps with other RBI Directions or rules under the Government Securities Act, 2006, those continue to apply, but where the two conflict, the 2026 Direction prevails on secondary market trading.

The definitions that do real work

Paragraph 2 packs twenty-two defined terms into about two pages. Most are pointers to other instruments: CSGL and SGL accounts borrow their meaning from the 2021 Constituents' SGL Guidelines, Government security comes from Section 2(f) of the G-Sec Act, ETPs from the 2025 ETP Direction, NDS-OM from the same instrument, and FPI from SEBI's 2019 FPI Regulations.

The substantive definitions worth flagging are the ones that change how a desk operates day-to-day:

Two omissions are worth noting. There is no defined term for liquid Government security in the body of the Direction. That label is delegated to FIMMDA and FBIL, which publish the list and update it from time to time. Whether a participant is sitting on a 2% short or a 1% short of the outstanding stock therefore turns on a list that the Direction itself does not maintain. Second, the Direction explicitly says that words not defined will draw their meaning either from the RBI Act or from the Government Securities Act, 2006, which keeps the cross-referencing tight.

Outright transactions: how a G-Sec actually changes hands from tomorrow

Section A is the central machinery of the Direction. Paragraphs 3 to 5 set out who can trade, where they can trade, how they get to NDS-OM, the ticket size, the trading window, the reporting clock, and the settlement spine.

Who is eligible

Paragraph 3 splits eligibility into two clean halves. Residents include firms, companies, corporates, institutions, States, Union Territories, provident and pension funds, trusts, HUFs, and individuals. The second half, paragraph 3(2), is where the FEMA reference lives: any person resident outside India permitted to invest in securities under the FEMA (Debt Instruments) Regulations, 2019 qualifies. That is the gate through which Foreign Portfolio Investors and any other non-resident class enter the secondary G-Sec market. The Reserve Bank does not re-define the eligibility on the non-resident side. It points to FEMA and the FPI Regulations, and those instruments do the work.

Five pathways to NDS-OM

Paragraph 4(1) maps out how each kind of participant actually reaches NDS-OM. The Direction enumerates five distinct access paths, which between them cover everyone from a primary dealer to an individual subscriber under Retail Direct.

Paragraph 4(2) layers a duty on top: direct members must provide web access to their constituent gilt account holders other than individuals. Constituents can opt out, but only in writing. Paragraph 4(3) does the same for individual gilt account holders on request. The intent is plain: the Reserve Bank wants more participants to actually see and use NDS-OM, not just settle through it.

Ticket size, trading window, and the basis of trade

Trades happen on price or yield basis, with a minimum face value of ₹10,000 and in multiples thereafter. Market hours are 9:00 AM to 5:00 PM on a Mumbai working day, unless the Reserve Bank specifies otherwise. The ticket size matters: it is small enough to be retail-friendly through the Retail Direct path, and the multiple-of-ten-thousand grid keeps the order book clean.

The reporting clock

Trades done off NDS-OM, including bilateral trades, must be reported to NDS-OM by both counterparties within fifteen minutes of execution, where execution means the moment price is agreed. A direct member reports on behalf of its indirect members. A direct member's trade with its own gilt account holder, or between two of its account holders, is reported by the direct member and deemed reported by both sides. FPI trades follow the reporting clock prescribed by the Master Direction on Non-Resident Investment in Debt Instruments, 2025, which keeps FPI-specific data infrastructure intact.

Settlement: T+1, DvP, through CCIL

Paragraph 4(10) is the new spine of the market. All trades settle on a T+1 basis unless the Reserve Bank specifically permits otherwise. FPIs may settle on T+1 or T+2 in line with the 2025 Non-Resident Debt Direction. Settlement is DvP through CCIL or another RBI-approved clearing agency. The securities leg runs through SGL accounts of direct members or CSGL accounts for indirect members. The funds leg flows through the direct member's RBI current account, or through a Designated Settlement Bank for participants without one.

For trades done on a recognised stock exchange, paragraph 5 keeps SEBI in the driver's seat for market timings (prescribed in consultation with the RBI) and for settlement instructions. The exchange itself must furnish returns and data to the Reserve Bank in the manner and format specified.

Selling what you do not yet own

Paragraph 4(6) carves out a narrow but important permission. A Government security contracted for outright purchase, contracted for purchase or repurchase under a repo (including through the Reserve Bank's Liquidity Adjustment Facility), or borrowed under a Government Securities Lending (GSL) transaction can be on-sold, but only if three conditions stack:

1. The original buy contract was entered into before the sale.
2. That contract is either with the Reserve Bank or is guaranteed for settlement by CCIL.
3. The sale is contracted to settle in the same or a subsequent settlement cycle as the purchase, repurchase or GSL transaction.

There is a further proviso for repo-acquired securities: outright sale of those is open only to entities eligible to undertake short sale transactions, and only in securities permitted to be short-sold under the Direction. In other words, repo is not a side-door to manufacture short positions in securities the entity would not otherwise be able to short.

Paragraph 4(7) confirms that securities allotted in a primary auction can be sold on the day of allotment, and the buyer may re-sell those subject to the same paragraph 4(6) conditions. The market does not have to wait a day to put auction allotments to work.

When Issued: trading a security that has not yet been born

When Issued is the regulated window in which market participants take positions in a Government security that has been authorised for issuance or re-issuance, with the auction yet to clear.

Section B preserves the architecture of the 2018 standalone Direction but tightens the language and folds it into the broader rulebook. Eligibility tracks the underlying security: anyone eligible to invest in the underlying G-Sec is eligible to undertake WI trades. Within that pool, three categories carry different position rules:

• Individuals, HUFs, NRIs and OCIs may take only long positions in the WI market. They may not go short.
• Scheduled commercial banks and standalone primary dealers may go both long and short. Any short net position at the cessation of WI trading on auction date must sit within the short sale limits of paragraph 13.
• All other eligible entities may go long and short but must close their short net position by the close of trading on the auction date itself.

Position limits are calibrated by category. Banks and standalone PDs are permitted long and short of up to 25 per cent of the notified auction amount in a specific security. Other eligible participants are capped at 10 per cent on the long side and 25 per cent on the short side, as per the position-limits table at paragraph 8. The Direction also confirms that "net position" for WI purposes means the participant's overall position in the security across current holding, allotted amount in the auction, and all WI trading positions.

The cancellation and audit rules

Paragraph 9(6) does something elegant: if the underlying auction is cancelled for any reason, all WI trades in that security are deemed void ab initio on grounds of force majeure. The market does not have to scramble to unwind positions in a security that will never exist. Paragraph 9(8) imposes concurrent audit on all WI transactions and requires any violation to be reported immediately to the Chief General Manager, FMRD. The combination of the void clause and the audit requirement is what makes the WI market workable for an instrument that is, by construction, conditional.

Short sale, finally codified for everyone in one place

Section C absorbs the 2018 Short Sale Direction and writes the short sale regime as a single sub-rulebook within the broader Direction. The substance is incremental rather than revolutionary, but the consolidation matters.

Eligible Government securities are those issued by the Central Government, excluding Treasury Bills. Eligible entities are scheduled commercial banks, standalone primary dealers, urban cooperative banks (within the limits of the 2025 UCB Investment Portfolio Direction), and any other regulated entity that gets approval from its sectoral regulator. The Reserve Bank deliberately keeps the door open for IRDAI, SEBI or PFRDA-regulated entities to be admitted on a case-by-case basis.

The notional short sale

Paragraph 12 confirms an important practical concession: a scheduled commercial bank may treat the sale of a Government security held in its own investment portfolio as a short sale (a "notional" short sale). Treated as such, it must comply with everything else in Section C. The provision is what allows banks to short the market without first having to surrender portfolio positions. It is one of the few places the Direction makes accommodation for a bank's balance-sheet reality.

The two-bucket position limit

Paragraph 13 sets a two-bucket short sale ceiling that turns on whether the security is "liquid". Liquid security status is delegated to FIMMDA / FBIL, which publish and update the list.

There is a sensible grandfather rule. If a security loses liquid status while a participant is sitting on a short position in excess of the "other" cap, the position need not be unwound. Fresh shorts in that security must, of course, respect the lower cap going forward.

Three months to cover, no exceptions

Paragraph 14(2) puts a hard three-month ceiling on a short sale before it must be covered by outright purchase of the same security. The purchase can come from the secondary market, a primary auction, or the When Issued market. Crucially, securities acquired under the RBI's LAF or any other liquidity facility cannot be used for short sale delivery, except in exceptional market-stress cases where a notional short sale by a bank may be delivered from its own portfolio (paragraph 14(1), provisos).

Accounting and audit

Short sales sit in a dedicated Securities Short Sold (SSS) Account, illustrated in Annex II of the Direction. The short sale and the related cover transaction are accounted in the Held For Trading (HFT) category and marked to market daily. Banks delivering from their own portfolios to cover a notional short sale treat the move as an internal borrowing, with securities returned to the original portfolio at unchanged book value. Concurrent audit is mandatory, with violations to be reported to the Chief General Manager, FMRD.

Annex II walks through a worked example using the 6.94% GS 2036, with a fifty-crore short on 15 June 2026 covered through a sequence of one-day and three-day reverse repos and a final outright purchase on 19 June 2026, settling on 22 June. The example shows how the SSS account, the investment account and the SGL flow stay in balance through the chain. For desks running the playbook, it is the most useful page of the document.

Where FEMA enters the room

Strip out the technical machinery and the regime for non-residents in this Direction is governed by exactly two cross-references. One is to the FEMA (Debt Instruments) Regulations, 2019. The other is to the Master Direction on Non-Resident Investment in Debt Instruments, 2025.

Eligibility for non-residents lives in paragraph 3(2), as flagged earlier. A person resident outside India is eligible only if FEMA permits them. FEMA, in turn, channels the bulk of non-resident G-Sec investment through three pipes: the SEBI-registered Foreign Portfolio Investor route, the Voluntary Retention Route, and the Fully Accessible Route for specified securities. The Direction itself does not list those pipes. It assumes the reader knows where to look, which is the FEMA Debt Regulations and the RBI's Non-Resident Debt Direction.

Inside the Direction itself, the non-resident calibrations are deliberately light:

• Reporting timing for FPI trades follows the 2025 Non-Resident Debt Direction rather than the fifteen-minute clock that binds resident counterparties (paragraph 4(8)(d)).
• Settlement cycle for FPI trades may be T+1 or T+2, again per the 2025 Direction, instead of the T+1 default that everyone else now lives with (paragraph 4(10)(a)).
• When Issued participation by NRIs and OCIs is restricted to long-only positions (paragraph 7(2)).

That is a thin layer on top of the FEMA-anchored entry rules. Read in the round, the architecture is now: FEMA decides who can come in and through which pipe, the 2025 Non-Resident Debt Direction decides how they report and clear, and the 2026 Secondary Market Direction decides what they can do once inside the market.

The other instructions, where the teeth sit

Section D is short. It is also where most of the enforcement language lives.

Information rights and data dissemination

Paragraph 17 entitles the Reserve Bank to call for any information, statement or clarification from any eligible participant, in the manner and within the time it specifies. Paragraph 18 reserves the right to publish anonymised market data, which underwrites the public-good case for NDS-OM as a transparency engine.

Default = SGL bouncing

Paragraph 19 is precise. A failure of settlement caused by insufficient funds in the buyer's current account or insufficient securities in the seller's SGL or CSGL account is treated as "SGL bouncing" under the Reserve Bank's circular on Imposition of Penalty for Bouncing of SGL Forms dated July 14, 2010, as amended. Penalties under that circular continue to apply. CCIL must report all instances of settlement failure to the RBI's Public Debt Office, Mumbai. The Direction does not invent a new penalty regime. It hooks into the existing one.

Conduct: market abuse and FIMMDA code

Paragraph 20 demands compliance with the Prevention of Market Abuse Directions, 2019, and adherence to the FIMMDA code of conduct for transacting in Government securities. Demat account holders trading on NDS-OM are also bound by the FIMMDA code. The latter is a quiet expansion: it brings retail-style holders inside a conduct rulebook traditionally aimed at institutional desks.

The disallowance power

Paragraph 22 is the harmonisation clause. The Government Securities Act, 2006, and rules made under it continue to apply to all secondary market trading. Other RBI directions remain binding where they do not conflict. Where they do, the 2026 Direction prevails.

What this changes for whom

Even though the Direction is principle-based and largely consolidatory, the practical lift is uneven across the participant universe.

What the Direction sweeps off the books

Annex I is the consolidation evidence. It lists three buckets of superseded circulars:

• Twenty-three circulars superseded by the 2026 Direction itself, covering FMRD and IDMD instructions from October 2000 through to February 2025. The earliest piece on the list, IDMC.PDRS.No.PDS.1/03.64.00/2000-01 dated October 6, 2000, sits at the very root of the modern secondary market rulebook.
• Four circulars superseded by the When Issued Direction, 2018, which is itself now folded in. That covers the IDMD instructions on WI trading from 2006 through 2015.
• Nine circulars superseded by the Short Sale Direction, 2018, also now folded in. That stack runs from IDMD No.03/11.01.01(B)/2005-06 dated February 28, 2006 through FMRD.DIRD.04/14.03.007/2017-18 dated November 16, 2017.

Once finalised, the Direction will be the only instrument a compliance team needs to read end-to-end on secondary trading. Inertia in compliance teams being what it is, the bigger benefit may be on the regulator's side: writing a fresh circular against a single base document is faster, cleaner and less error-prone than amending a thirty-year-old chain.

The road ahead

The 2026 Direction does for Government securities trading what the 2025 Master Direction on Non-Resident Investment in Debt Instruments did for the offshore side, and what the 2025 NDS-OM Access Criteria Direction did for the access plumbing. It rolls disparate threads into a single, citable instrument, with a clear hierarchy when other rules conflict.

The signal to read in the round is the Reserve Bank's quiet preference for one rulebook per asset class, governed by one principle-based Master Direction, with FEMA and the Government Securities Act left as the framing statutes. Read alongside our Government Securities & Money Market: Complete Timeline, the trajectory becomes obvious: scattered to consolidated, consolidated to principle-based, principle-based to one rulebook per asset class.

What will follow once the consultation closes is more interesting. The Direction's drafting is permissive in places where the Reserve Bank could have been tighter, and tight in places where the market would have welcomed more room. Where comments land on the WI cancellation rule, the 25 per cent ceiling, and the three-month short sale cover, will tell us how settled this version really is.