What is SGL?
As the name suggests, it stands for Subsidiary General Ledger. Reserve Bank of India, keeps the records of holding of various investors in the securities issued by Central and State Government. The SGL, in short keeps the names of all investor in a particular security at any point of time. The securities are held in electronic form in SGL accounts.


What is a Constituent SGL Account and how it is different from SGL - I Account?
All investors in Government securities do not have an access to the SGL accounting system. Therefore, the RBI has permitted them to either hold their securities in physical stock certificate form or open a client account with any of the authorised SGL holders to hold their securities and avail of the DVP settlement. Such client accounts are referred to as Constituent SGL accounts. A constituent SGL account is an account held by an intermediary at RBI on behalf of its constituents who have empowered the said intermediary to carry out various transactions on their behalf. In this account only constituent transactions can take place and under no circumstances the intermediary will use this account for proprietary transactions. SGL-I Account is meant for routing all proprietary deals.


What do I gain by holding my securities through Constituent SGL over holding the physical certificates?
Physical certificates, as you know always carry a risk of loss by theft, destruction, fire or forgery. Moreover, the custody, movement and registration of physical certificates involve cost and delays. When the securities are converted into SGL holdings the custody of such securities automatically lies with the RBI through the main SGL account holder. Thus, the system of holding and settling securities through the constituent SGL account is not only safe but is faster also as the delivery of funds/securities is ensured on the same day. Apart from the prompt settlement of trades, constituent SGL holders also benefit from prompt and virtually hassle free interest payments, redemption and other types of corporate actions.


Is it only the ease of holding securities by electronic book keeping or something beyond that?
As mentioned earlier, the various risks due to holding securities in physicals are eliminated. Interest payments and redemption also become virtually hassle-free as NSCCL shall take the responsibility of settling them on the due dates. Apart from this, the outstation constituents can trade more actively in the market and reap better returns. Experience shows that trades using SGL settlement usually command a better price as compared to their physical counterparts. Another major advantage that accrues from this system is the fast and hassle free settlement of the trades executed by the constituent using its SGL securities.


What are Government Securities?
Government Securities are papers issued by either Central or State government for raising resources from the market. These can be dated securities or popularly known as "Gilts", State Development Loans, Treasury Bills of 91-day & 364-day duration. The dated securities can go for either price based or yield based auctions while the T-bills being a zero coupon paper is issued through price-based auction.


How is a T-bill is different from a dated paper?
Treasury Bills are of short-term duration and have pre-fixed days when the same is auctioned. Dated papers are issued for more than one-year duration. In calculation of yield and interest payment consideration, the market convention of 365 days is used for T-bills while for dated papers the market convention is 360 days and each month is considered as 30 days.


What is State Development Loan?
State Development Loans are securities issued by various State Governments and normally all SDLs go via fixed yield auctions.


What do you understand by retailing the debt?
Retailing the debt means taking the debt market to retail investors. Today, the debt market in the country is predominantly inhabited by wholesale players like Banks, Financial Institutions, Primary Dealers, FIIs, Mutual Funds, Insurance Companies, Brokers, Pension Funds, etc. For vibrant debt market, it is necessary to attract retail investors so that they can participate in the market that will bring them a reasonable return with very low or minimum risk. RBI has initiated the process by allowing PSU banks to retail Government papers to investors at the grass root level. SGL-II facility has also been aimed to achieve this objective as any person or a body corporate, etc. can open the said account to hold their portfolio of Government securities.


What is DVP system?
The abbreviation stands for Delivery Versus Payment. RBI settles all deals in Government securities through this mechanism. What normally RBI does is to check the sellers SGL account with Public Debt Office to find out the requisite balance and buyer's fund account with Deposit Accounts Department to check availability of requisite funds. If both are satisfied, then RBI effects the transfer i.e. buyer gets Securities balance in his SGL account and seller gets cash in his Funds account. RBI is working to move towards a Real Time Gross Settlement System.


Who can open an SGL-II account?
As per the guidelines issued by RBI, an intermediary can get the permission from RBI to hold Constituent SGL Account with RBI on behalf of its constituents provided the said intermediary meets certain pre-fixed requirements set by RBI. National Securities Clearing Corporation Ltd. Is one such intermediary that has been permitted by RBI to hold SGL-II accounts on behalf of its constituents. Any person, a body corporate, a Pension Fund, a Provident Fund, etc. are eligible to open such accounts with NSCCL provided they submit the requisite papers to NSCCL.


What is NSCCL's role in SGL-II?
NSCCL facilitates transaction in Government securities of its constituents, provides facilities for dematerialisation, rematerialisation, value free transfer, Interest payment and Redemptions, participation in Primary Auctions and OMOs, etc.


Why should you open an SGL account with NSCCL?
NSCCL provides this facility in major metro centers. The lower transaction cost and annual holding charges are added benefits provided to constituents. It has tied up with a clearing bank, Global Trust Bank for cash transactions.


What documents do you require to open an account?
Account opening forms need to be filled in (the same can be downloaded from NSE web site: nse-india.com) by the constituent and the documents as stated in the annexure of the account opening form. The major documents are the list of Authorised Signatories, Trust Deed, Balance Sheets for last three years, passport sized photographs, etc.


Who can sign the papers for opening the SGL - II account?
Authorised Signatories of corporate bodies, PF Trusts, etc. and individual account holders or their power of attorney holders can sign the papers for opening the SGL-II accounts.


How long it takes to open an account?
It is a very simple process and once the application with the required details and documents are received, accounts are opened immediately by NSCCL and constituents can operate their account.


How you can give instructions to effect a settlement in your account?
There is a standard form designed by NSCCL which records all details of the transactions. The same needs to be signed and sent by constituent either by fax or by surface mail or by hand delivery. The instructions should be clear.


What is dematerialization?
It is the process through which securities held in physical form are converted into book entry form or electronic form. Any constituent can submit the necessary form of transfer and authorization letter to convert the physical certificates into electronic form to be held in SGL-II account with NSCCL. It normally takes a week for dematerialization at RBI.

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