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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:
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 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.
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.
What is rematerialisation?
The process of converting electronic holding of securities into physical form is known as
rematerialisation. A constituent can give request in a specific form for rematerializing his holding
in part or full. The rematerialisation process takes about 15 days at RBI.
What are the forms to be filled in various stages for SGL-II transactions?
Form III for transfer of securities in SGL, Form 46 for Dematerialisation Request, Form 47 &
47A, for Rematerialisation in self and third party names, form 135 for Inter city transfers and
form 43 for conversion request where RBI gives option to convert a particular security into a
new security being issued on redemption of the existing security. NSCCL fills in form 43 for the
same for submission to RBI.