Negotiated_Dealing_System

Key Takeaways

• The Negotiated Dealing System (NDS) is an electronic platform by the Reserve Bank of India for trading government securities and money market instruments.
• Introduced in 2002, NDS aims to enhance transparency and efficiency, moving away from telephone-based trading methods.
• The NDS-Order Matching (NDS-OM) system, launched in 2005, enables anonymous, order-driven trading in government securities.
• NDS-OM has Direct and Indirect Members, with different access levels to trading and settlement features.
• NDS includes a Primary Market Module for auctions of government securities and a Secondary Market Module for reporting over-the-counter trades.

What Is the Negotiated Dealing System (NDS)?

The Negotiated Dealing System (NDS) is an electronic trading platform managed by the Reserve Bank of India (RBI). It enables efficient trading and the exchange of government securities. Launched to modernize the Indian securities market, it replaces outdated phone-based systems, reduces manual paperwork, and improves transparency for domestic and international investors. From its order-matching framework and membership structure to its evolution, core modules, and broader impact, the NDS stands out as a key development that has reshaped how government securities are traded in India.

In-Depth Look at the Negotiated Dealing System

The Negotiated Dealing System was introduced in February 2002 to help the Reserve Bank of India, or RBI, enhance the dealings of fixed-income investments. While the RBI owns the NDS, it is administered by the Clearing Corporation of India Ltd. (CCIL).1

Prior to the NDS, the country's government securities market was primarily telephone-based, which meant that buyers and sellers had to place trades over the phone, submit physical Subsidiary General Ledger transfer forms, and issue checks for the settlement of funds to the Reserve Bank of India. These slow and inefficient procedures led to the development and implementation of the NDS.

In August 2005, the RBI introduced the Negotiated Dealing System - Order Matching system, or NDS-OM, an electronic, screen-based, anonymous, order-driven trading system for dealing in government securities.2 The system is designed to bring transparency to secondary market transactions while enabling members to place bids and offers directly on the NDS-OM screen.

Operational Details of the Negotiated Dealing System

There are two types of NDS-OM members, including:3

Direct Members - Direct members have current accounts with the RBI and can directly settle trades on NDS-OM.

Indirect Members - Indirect members do not have current accounts with the RBI and must settle through NDS-OM members that have direct accounts. Most foreign institutional investors have indirect access, while resident entities may have direct access.

Many other countries have similar electronic systems in place for managing government securities, money market accounts, and related securities to increase transparency and lower costs.

For more information about the Negotiated Dealing System, see the RBI's Negotiated Dealing System Overview.

Exploring the Modules of the Negotiated Dealing System

The Negotiated Dealing System consists of two modules, which are designed for different types of member institutions.

These modules include:3

Primary Market Module: The RBI uses the primary auction platform for the auction of federal and state securities, as well as treasury bills. The platform enables participants to electronically submit their bids in primary auctions and receive allotment reports.

Secondary Market Module: Over-the-counter trading often happens over the phone, but everyone is required to report these trades using the NDS secondary market module. The data then flows to the Clearing Corporation of India Ltd. for clearing and settlement, which avoids the need for paper-based settlement processes.

Reserve Bank of India. "Retail Participation by Demat Account Holders in the Government Securities Market: Access to NDS-OM Platform." Accessed Dec. 9, 2021.

Reserve Bank of India. "Retail Participation by Demat Account Holders in the Government Securities Market: Access to NDS-OM Platform." Accessed Dec. 9, 2021.

CCIL. "Milestones." Accessed Dec. 9, 2021.

CCIL. "Milestones." Accessed Dec. 9, 2021.

Reserve Bank of India. "Negotiated Dealing System (NDS)." Accessed Dec. 9, 2021.

Reserve Bank of India. "Negotiated Dealing System (NDS)." Accessed Dec. 9, 2021.

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