Delivery of G-sec or Tax Free Bonds

Bonds
1

Is there a way any Primary Dealers/Broker/Sub-Broker can trade on behalf of the Client in G-Sec on a NON-DELIVERY Basis i.e. without giving actual delivery of G-sec in the Demat Account?

Is such a transaction possible in any way?
In the scenario, the broker trades on behalf of the client in Government Securities (G-Sec) on a Non-Delivery Basis, meaning that no actual delivery of G-Sec bonds is made to the client’s Demat account. Here’s a summary of the process:

  1. Client Payment: The client deposits money into the broker’s account to purchase G-Sec.
  2. Broker’s Trading: The broker uses this client’s money to buy/Sell G-Sec throughout the year but keeps the bonds in their own company’s Demat account, rather than transferring them to the client’s Demat account.
  3. No Actual Delivery: Despite trading G-Sec for the client, no actual G-Sec bonds are credited to the client’s Demat account.
  4. Deal Confirmations: The broker provides deal confirmations to the client for the securities bought on their behalf on the company’s letterhead.
  5. Interest Income: Any interest income earned from holding these G-Sec bonds is passed on to the client.

Any inputs with reference to SEBI and RBI rules will appreciated.

2

Not sure whether legally this is allowed or not, but this is risky.

Because if Stock broker goes bust, you will loose all your holding. This has happened in past and that has resulted in SEBI coming up with multiple regulations to ensure that Stocks are held in individual demat account and not in broker’s pool account.

Also, there would be KYC concerns. Especially for Gsec which has strict regulations on how much foreign participants can Hold. Allowing such structure means creating a loophole where end investor can hide their identity and buy what they are not allowed to.

Not sure what advantage you see in this structure, but I doubt any broker would be offering this, or SEBI would allow this.

3

I agree with your view, even I am seeking information regarding the transaction mentioned above as I recently became aware of it and want to determine if such transactions are indeed possible, especially since SEBI has not explicitly banned non-delivery-based transactions.

Thanks for your Inputs

1 Like
4

Are you saying someone is already offering such a service? :thinking:

5

Yes, some brokers are providing these services and as the G-sec Market is Regulated by the RBI they have to follow the RBI mandates as well. They have a fixed RBI format through which they can issue the Delivery / Transaction note.

Here is the link to the RBI Specimen of Deal Slip.

6

What you have shared has completely different function then what you are implying.

Function of Deal slip you have shared is as follows:
Reserve Bank of India (rbi.org.in)

image
image1484×426 65.8 KB

image
image1472×215 29.9 KB

So basically this is used to document a deal is being done.
It is for bank (mainly co=operative banks) to record the deal and not by broker.

No way this slip can be used to hold Gsec on someone’s behalf. This was the modus operandi used by Harshad Mehta in his infamous scam, wherein instead of giving Gsec deliveries to banks, he used to just show forged Bank receipts issued by banks and use that money to pump up stock market.

Someone is fooling you by showing unrelated documents and using RBI name to fool you. Stay away from them