The Reserve Bank of India (RBI) issued a draft of directions to all agencies dealing in government securities.
A Government Securities Lending (GSL) transaction refers to dealing in government securities involving lending of eligible Government securities for a GSL 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 the security borrowed to the lender and the latter shall return back the security received as collateral to the former at the end of the agreed period.
Eligible securities:
(1) Government securities issued by the Central Government excluding Treasury Bills shall be eligible for lending/borrowing 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.
Eligible participants:
(1) The following entities are eligible to participate in GSL transactions as lenders of securities:
- An entity eligible to undertake repo transactions in Government securities in terms of the Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018 dated July 24, 2018, as amended from time to time.
- Any other entity approved by the Reserve Bank for this purpose.
(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.
Tenor:
GSL transactions shall be undertaken for a minimum period of one day and a maximum period of ninety days.
Trading processes:
GSL transactions may use any mutually agreed trading process, including but not limited to, bilateral or multilateral, quote driven or order driven processes, anonymous or otherwise.
Settlement of trades:
(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 approved by the Reserve Bank for the purpose.
Pricing of securities/collateral, haircut and margining:
(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.
Use of security borrowed and substitution of collateral:
(1) Securities borrowed or received as collateral under a GSL transaction may be sold either through an outright transaction or a repo transaction or lent under another GSL transaction.
(2) Securities placed as collateral may be substituted by the borrower with other securities in terms of the rules of the central counterparty.
Reporting of trades:
(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 (the time when GSL fee is agreed), by both counterparties to the transaction or by the Electronic Trading Platform 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.
Computation of Statutory Liquidity Ratio (SLR):
(1) Securities borrowed under a GSL transaction shall be eligible for SLR for the borrower provided the security is primarily eligible for SLR as per the provisions of the Act under which it is required to be maintained. Accordingly, the security lent under a GSL transaction shall not be eligible for SLR for the lender.
(2) Securities received as collateral under a GSL transaction shall be eligible for SLR for the lender provided the security is primarily eligible for SLR as per the provisions of the Act under which it is required to be maintained. Accordingly, the security placed as collateral under a GSL transaction shall not be eligible for SLR for the borrower.
Documentation:
Participants undertaking GSL transactions shall enter into standard bilateral master GSL agreement, with their counterparty, as per the documentation finalized by FIMMDA (Fixed Income Money Market and Derivatives Association of India).