Non-bank brokers are assessing the costs and benefits of SEBI and the RBI’s move to grant them direct access to the Negotiated Dealing System-Order Matching (NDS-OM) platform for trading in government securities and have hailed the move as a game-changer for India’s debt market.
G-secs, with their sovereign backing and high liquidity, have always been a preferred asset class, especially among institutional, UHNI and HNI investors. However, trading activity has remained limited due to the enormous lot size and because the direct access platform was restricted to banks and primary dealers.
Lately, brokers have seen growing demand among retail traders—partly because the tax arbitrage on debt mutual funds was eliminated and partly for diversification into fixed-income instruments—presenting an opportunity to offer G-secs directly to clients.
Allowing direct access to non-bank brokers is expected to increase awareness among retail investors about trading in G-Secs, improve liquidity and price discovery, and reduce the complexities of trading in the secondary market, said brokers.
“In addition to eliminating administrative obstacles, the smooth integration of the broking platform to access government securities would increase price discovery and market liquidity,” said Amar Ranu, Head – Investment Products & Insights at Anand Rathi Shares and Stock Brokers.
He sees this as a step toward expanding government borrowing and allowing retail investors to participate—even though volumes will take some time to reflect this.
Ajay Garg, CEO at SMC Global Securities, said, “Stockbrokers stand to benefit from broader retail participation in a regulated, liquid, and efficient market which will help in expanding their offerings and customer base.”
Compliance costs
While the move is expected to be a game-changer for the market and industry, brokers see some operational and financial challenges in setting up separate business units (SBUs) as mandated by the regulator.
“Creating a distinct business unit would incur additional costs; but, before doing so, we should do a cost-benefit analysis,” said Ranu. Brokers must examine the related expenses and prospective income, he said.
Nikunj Saraf, Vice president at Choice Wealth said, “While this involves additional operational costs, it ensures compliance and allows us to offer a focused infrastructure for seamless transactions.”
“For brokers with a strong institutional client base, the long-term benefits outweigh the costs, as G-secs present a lucrative opportunity to deepen client engagement and expand market share,” Saraf said.
For now, brokers are taking a measured approach, evaluating infrastructure needs and regulatory requirements before jumping in. Some are leveraging existing partnerships with bank brokers while exploring long-term business strategies, while some are in the process of settling up business units.
The regulator has prescribed steps for brokers to follow, requiring a clear distinction between the NDS-OM activities of the SBU and securities market-related activities. The books of accounts and net worth of the SBU should be maintained and disclosed separately from the stockbroking business.