The Negotiated Dealing System (NDS) is an electronic trading platform established by the Reserve Bank of India in 2002 to facilitate the issuance and trading of government securities and money market instruments. It replaced the inefficient manual trading methods with a system that improves liquidity, transparency, and cost-effectiveness in both primary and secondary markets. The NDS includes two modules for primary and secondary markets and offers several benefits for both the RBI and investors, including enhanced trading efficiency and easier access to investments.

1. What is the Negotiated Dealing System (NDS)?
The Negotiated Dealing System (NDS) is a fully electronic trading platform
that is instituted and operated by the Reserve Bank of India (RBI) with the
mandate of facilitating the issuance and secondary trading of government-
issued securities and other types of money market instruments.
The Negotiated Dealing System (NDS) was implemented in 2002 by the
Reserve Bank of India, with the aim of improving the efficiency and liquidity
of the fixed income market within India. The RBI’s move follows other
central banks that use electronic systems for managing the issuance and
secondary sale of government securities and money market accounts. The
systems improve transparency, increase overall efficiency, and lower costs.
Before the NDS was implemented, most of India’s government securities
were traded manually through telephone orders and physical paperwork.
Buyers and sellers would place trades over the telephone, submit transfer
forms, and issue physical checks to settle trades with the RBI. Clearly, it
was an inefficient system, given that many of the world’s central banks in
the developed world already made the switch to fully electronic trading
platforms earlier.
The NDS initially was used for the issuance of government securities in the
primary market. However, in August 2005, the Reserve Bank of India
introduced the Negotiated Dealing System-Order Matching system
(NDS-OM), which was an electronic, platform-based, anonymous, order-
matching trading system for dealing in government securities on
the secondary market.
The system was implemented to bring greater transparency and liquidity to
secondary market transactions, while simultaneously allowing members of
the NDS to place bids and offers directly on the NDS-OM platform.
Secondary market trading is essential to providing liquidity to government-
issued securities. Enhancing the liquidity and secondary market activity
was a vital step for the RBI to improve the attractiveness of their bonds,
treasury bills, money-market accounts, and other securities.
Characteristics of the NDS
1. Membership
The NDS-OM platform comprises two types of members:
1. Direct members
2. Indirect members

2. Direct members hold accounts directly with the Reserve Bank of India and
can settle trades directly through trades on the NDS-OM platform.
Indirect members do not hold accounts with the RBI and must settle
indirectly through NDS-OM direct members who hold accounts with the
Reserve.
2. Modules
The NDS comes in two modules that are designed for different types of
institutions. The modules are:
1. Primary market module
2. Secondary market module
The primary market module is a primary auction system that is for the
initial listing of federal and state securities and treasury bills. The module
enables members to submit their bids on auctions fully electronically and
receive trading reports.
The secondary market module is an over-the-counter (OTC) trading
platform that is cleared over the phone but is required to be reported to the
NDS secondary market module. The inputted data is transferred to
the Clearing Corporation of India Ltd., which proceeds to complete the
trade through clearing and settlement.
Benefits of the NDS
The benefits for the Reserve Bank of India are as follows:
 Liquidity: Government securities are much more liquid and easily
tradeable.
 Attractiveness: Government securities are more attractive to
investors.
 Legitimacy: The legitimacy of the RBI is improved from a global
perspective.
 Efficiency: Trading speed, clearing, and settlement are faster and
cost less.
The benefits to investors are as follows:
 Ease of access: More investors can easily access and buy or sell
government securities.
 Cost: The cost of brokers and other trading services is reduced.
 Direct investing: Investors can manage their own securities and
investment portfolios more easily.

3.  Convenience: It is much more convenient, as trades can be made
from anywhere through the access of the internet.