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SUVEER MALHOTRA 28

TRADING IN CONSTITUENT SGL ACCOUNT What is a Constituent SGL Account ?


SGL stands for Subsidiary General Ledger Account. It is a fascility provided by the RBI to alrge banks and financial institutions to hold their investments in Government securities and Treasury bills in the electronic book entry form. A Delivery Versus Payment method is followed by the institutions who can settle their trades for securities held in a SGL account. This technique ensures movement of funds and securities simultaneously. Certain SGL holders like corporates , PF Trusts , Individuals , Institutions , State Government etc. can open a CSGL account but not a SGL account. All big banks and primary dealers have a SGL account with the RBI in Mumbai.

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.

Discount And Finance house of India Limited Introduction


Discount and Finance House of India Ltd. (DFHI), a unique institution of its kind, was set up inApril 1988. The discount has been established to deal in money market instruments in order to provide liquidity in the money market. Thus the task assigned to DFHI is to develop a secondarymarket in the existing money market instruments.The share capital of DFHI is Rs 200 crores, which has been subscribed by Reserve Bank of India(10.5%), Public sector banks (62%) and Financial Institutions (26.6%).The main objective of DFHI is to facilitate the smoothening of the short term liquidityimbalances by developing an active money market and integrating the various segments of themoney market.

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Who can deal with DFHI


Individuals , Corporate , Regional rural banks , Provident fund , pension funds, gratuity fundsTrustsInsurance companiesMutual fundsBanks

The Functions of DFHI


DFHI discount and rediscount , purchase and sell Treasury bills , trade bills of exchange and commercial papers. They also play an important role as a lender or broker in the interbank call moneymarket. They also promote and help organizations for the development of short term money market. Evolve schemes for growth and development of Money Market.

OPERATION
The Discount and Finance House of India Ltd. (DFHI) opens a Constituent Subsidary General Ledger Account with the Reserve Bank of India (RBI). To open a account an Account opening form is required which needs to be duly filled by the constituent and the documents need to be attached. The major documents are the list of Authorised Signatories , Trust deed , Balance Sheets for the last three years and Passport Size Photographs etc. It is a very simple process , once the documents are submitted with all the paperwork the account is opened immediately by the NSCCL and the constituents can operate their accounts. The customer can open a constituent SGL account with the DFHI on the basis of the agreement entered into by the constituent with DFHI. As physical certificates carry a risk of theft , robbery , fire and forgery etc. and the custody of such certificates involve a lot of cost and delays. When the securities are transferred into a SGL account it remains with the RBI which is safe and sound and also is cheap and fast. The customers have the facility to keep their holdings in Treasury Bills (14 364 Days ) as well as dated government securities which are also known as Gilts. The securities are then transferred from the DFHIs normal SGL account to the CSGL Account ( Constituent Subsidary General Ledger ). After the transfer is done , the DFHI issues a certificate of holding for the records of the investor , a copy of which is kept with the DFHI as well as the customer.

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On maturity the proceeds and the intrest is transferred to the constituent. The intrest payments are made by the RBI on due dates. The money is either directly wired into the constituents account or a cheque is issued. If the constituent desires , disinvestments should be facilitated and securities are transferred from its constituents account on receipt of authorization from the holder. In a CSGL account other securities are also sold and bought such as State Developmental loans , T-bills , Dated government securities etc. When a security is bought the SGL transfers from the seller or duly endorsed physical scrips are submitted to the DFHI so that it can transfer it to the RBI.

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