SGL stands for 'Subsidiary General Ledger' account. It is a facility provided by RBI to large banks and financial institutions to hold their investments in Government securities and Treasury bills in the electronic book-entry form. Such institutions can settle their trades for securities held in SGL through a Delivery-versus-Payments (DVP) mechanism which ensures movement of funds and securities simultaneously.

As all investors in Government securities do not have an access to the SGL accounting system, RBI has permitted such investors to hold their securities in physical stock certificate form. They may also open a Constituent SGL account with any entity authorised by RBI for this purpose and thus avail of the DVP settlement. Such client accounts are referred to as Constituent SGL accounts.

Due to the wholesale nature of the market, retail investors usually loose their competitive strength due to their physical holdings. Further, absence of a common settlement agency makes it difficult for the retail investors to settle these transactions on a bilateral basis.

To redress the problems faced by retail participants in the market, NSCCL offers Constituent SGL facility to such participants. RBI has allowed NSCCL to open SGL and current accounts for this purpose. RBI has also permitted PFs/Trusts to open their accounts with NSCCL vide its letter PDO.SGL.07.18.21/ 97/98 dated March 30, 1998. NSCCL is also taking steps to setup a common clearing and settlement framework for its SGL constituents. This endeavour will help the market to have uniform settlement procedures and will help evolve the market to a higher plane.

NSE has further illustrated its scheme for retail trading in Government Securities through a question-answer format, i.e. Frequetnly Asked Questions (FAQs) as under:

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.

Physical certificates 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.

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.

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 14-day, 91-day, 182-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.

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.

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?