The Indian Government Securities (G-Sec) market has undergone significant modernisation with the introduction of electronic trading platforms that improve transparency, liquidity, and price discovery. One of the most important platforms facilitating trading in Government Securities is the Negotiated Dealing System – Order Matching (NDS-OM) operated under the supervision of the Reserve Bank of India (RBI).

Recognising the increasing participation of intermediaries in the debt market, SEBI has permitted eligible stock brokers to access the NDS-OM platform subject to strict regulatory safeguards. However, unlike equity broking activities, participation in the Government Securities market requires stock brokers to maintain an appropriate degree of organisational separation between their securities market activities and their NDS-OM operations.

To achieve this objective, SEBI requires brokers accessing NDS-OM to operate through a Separate Business Unit (SBU). The requirement is intended to prevent conflicts of interest, strengthen governance, enhance operational controls, and protect market integrity.

This article explains the Separate Business Unit requirement, its regulatory purpose, and the compliance expectations applicable to stock brokers.

What is NDS-OM?

The Negotiated Dealing System – Order Matching (NDS-OM) is an electronic, screen-based trading platform primarily used for trading Government Securities.

The platform facilitates:

trading in Central Government Securities;
State Development Loans (SDLs);
Treasury Bills;
certain sovereign debt instruments; and
other eligible fixed-income securities.

It provides an efficient and transparent mechanism for order matching and execution in the Government Securities market.

Why Are Stock Brokers Permitted Access?

Historically, participation in the Government Securities market was limited to specified institutions.

Allowing eligible stock brokers to access NDS-OM has helped:

improve market liquidity;
widen investor participation;
strengthen price discovery;
enhance market efficiency;
improve distribution of Government Securities; and
deepen India's debt markets.

However, participation also creates additional regulatory and operational responsibilities.

Why is a Separate Business Unit Required?

Government Securities trading differs significantly from conventional equity broking activities.

Without appropriate organisational segregation, there may be risks relating to:

conflicts of interest;
misuse of confidential information;
inadequate risk segregation;
operational overlap;
weak internal controls; and
ineffective compliance supervision.

Accordingly, SEBI requires brokers to maintain a Separate Business Unit (SBU) for eligible NDS-OM activities.

What is a Separate Business Unit (SBU)?

A Separate Business Unit is an organisational structure established within the broker to independently manage NDS-OM related activities while maintaining appropriate segregation from other business operations.

The objective is not to create a separate legal entity but to establish clear operational separation supported by effective governance and internal controls.

Regulatory Objectives of the SBU Framework

The Separate Business Unit requirement seeks to:

minimise conflicts of interest;
strengthen governance;
improve operational oversight;
segregate risks;
enhance regulatory supervision;
protect confidential information;
improve accountability; and
preserve market integrity.

Key Compliance Expectations

Stock brokers operating an SBU should establish comprehensive governance covering:

Organisational Segregation

The SBU should function independently from other business activities to the extent required under the applicable regulatory framework.

Independent Operational Controls

Operational processes should clearly identify responsibilities relating to:

trading;
settlement;
reporting;
compliance;
supervision; and
risk management.

Information Barriers

Appropriate controls should prevent unauthorised sharing of confidential or market-sensitive information between business functions.

Information barriers are an important safeguard against conflicts of interest.

Independent Risk Management

Risk monitoring should appropriately address the risks associated with Government Securities trading, including:

market risk;
operational risk;
settlement risk;
liquidity risk; and
compliance risk.

Compliance Oversight

The Compliance Officer should ensure that activities undertaken through the Separate Business Unit comply with:

SEBI regulations;
RBI directions where applicable;
Stock Exchange requirements;
Clearing Corporation procedures; and
internal compliance policies.

Governance Framework

The board and senior management should establish clear governance over the Separate Business Unit.

Governance should include:

documented organisational structure;
defined reporting lines;
allocation of responsibilities;
periodic compliance reviews;
internal reporting; and
escalation mechanisms.

Strong governance supports regulatory compliance.

Documentation Requirements

Stock brokers should maintain documentation relating to:

SBU structure;
internal policies;
operational procedures;
compliance reviews;
risk management reports;
internal approvals;
audit findings; and
regulatory correspondence.

Proper documentation assists during inspections.

Internal Audit

Internal audits should periodically evaluate whether the Separate Business Unit continues to function in accordance with regulatory expectations.

Audits should examine:

governance;
segregation of activities;
operational controls;
compliance procedures;
information barriers;
documentation; and
risk management.

Audit findings should be addressed through timely corrective action.

Responsibilities of Senior Management

Senior management should periodically review:

effectiveness of organisational segregation;
compliance with regulatory requirements;
operational performance;
risk management;
internal audit observations;
technology controls; and
investor protection measures.

Oversight should be continuous rather than event-driven.

Regulatory Inspections

During inspections, regulators may review:

organisational structure;
SBU governance;
compliance records;
internal policies;
audit reports;
operational controls;
risk management framework; and
documentation supporting segregation of activities.

The quality of governance often becomes a key focus during regulatory inspections.

Common Compliance Mistakes

Regulators may identify deficiencies such as:

inadequate organisational segregation;
weak governance framework;
insufficient documentation;
ineffective information barriers;
poor internal oversight;
absence of periodic compliance reviews;
inadequate risk management; and
delayed implementation of audit recommendations.

Such deficiencies may expose brokers to regulatory observations.

Best Compliance Practices

Stock brokers should establish:

board-approved SBU governance policies;
documented operational procedures;
clearly defined reporting structures;
robust information barrier policies;
periodic compliance certifications;
comprehensive internal audits;
independent risk monitoring;
structured documentation practices; and
regular review of SEBI, RBI, and Stock Exchange circulars.

A well-governed Separate Business Unit strengthens both regulatory compliance and operational efficiency.

Practical Compliance Takeaway

The Separate Business Unit requirement is not merely an organisational formality. It reflects SEBI's expectation that Government Securities trading should be supported by independent governance, robust internal controls, effective risk management, and clear accountability.

Stock brokers should periodically evaluate whether their organisational structure continues to satisfy evolving regulatory expectations as their debt market activities expand.

Conclusion

SEBI's framework permitting stock brokers to access the NDS-OM platform represents an important step in broadening participation in India's Government Securities market. At the same time, the requirement to operate through a Separate Business Unit ensures that brokers maintain appropriate governance, minimise conflicts of interest, and preserve the integrity of both the debt and equity markets.

By implementing strong organisational segregation, comprehensive internal controls, effective compliance oversight, and disciplined documentation practices, brokers can confidently participate in the Government Securities market while satisfying regulatory expectations.

How Anuj Desai & Associates Can Help

Anuj Desai & Associates advises Stock Brokers, Clearing Members, Depository Participants, Alternative Investment Funds (AIFs), Portfolio Managers, Investment Advisers, Research Analysts, FinTech companies, and other SEBI-regulated intermediaries on securities law, governance, operational compliance, and regulatory structuring.

Our services include:

Advisory on SEBI, RBI, and Stock Exchange regulations governing debt market participation.
Review and structuring of Separate Business Unit (SBU) governance frameworks.
Gap analysis of operational segregation, compliance controls, and risk management systems.
Drafting of governance policies, SOPs, compliance manuals, and internal control documentation.
Internal audits and regulatory inspection readiness reviews.
Review of information barrier policies and conflict management frameworks.
Assistance in responding to regulatory observations issued by SEBI, Stock Exchanges, and other market infrastructure institutions.
Ongoing compliance support for stock brokers participating in Government Securities and other regulated market segments.

Whether you are planning to obtain NDS-OM access, restructuring your governance framework, or preparing for a regulatory inspection, Anuj Desai & Associates provides technically robust, regulator-focused, and practical advisory solutions that help intermediaries maintain compliance while strengthening operational governance.

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NDS-OM Access for Stock Brokers — The Separate Business Unit Structuring Requirement