Constituent SGL account
Also written CSGL account · SGL-2 account
The Subsidiary General Ledger account a depository holds with RBI on behalf of its clients, through which investors hold government securities in their ordinary demat accounts.
In plain language
Government securities in India are recorded in RBI's books. Large entities that are eligible can hold them directly in a Primary SGL account with RBI. Everyone else needs an eligible entity to hold them on their behalf. This is a Secondary SGL, or constituent, arrangement.
The depositories have been allowed to keep such Constituent SGL (CSGL) accounts for their investors, through DPs. RBI's records show the depository's total balance. The depository's records show each investor's share of it.
The result is simple. An investor can hold equity shares, mutual fund units and government securities in the same demat account. He can also deal in G-Secs (government securities) through his DP, just like any other security.
How it works
From Chapter 11 (section 11.4):
SGL basics. G-Secs may be held as physical certificates or in book-entry (SGL) form. Primary SGL accounts are opened directly with RBI by entities meeting RBI's eligibility criteria, and used only for their own investments. An entity permitted a Primary SGL may also offer Secondary SGL facilities to keep accounts of constituent investors; it maintains sub-accounts for each, while its SGL account with RBI shows the consolidated balance. All G-Sec issue management, settlement, interest and redemption is handled by RBI through its Public Debt Office (PDO).
Depository CSGL. Depositories may maintain CSGL accounts of investors through DPs; any client account with a DP may be used for G-Secs.
Getting G-Secs in.
- Demat of physical certificates: DRF-GS plus the RBI Form of Transfer; the DP endorses "Tendered for Cancellation and credit to SGL A/c No. ___, Mumbai", does not punch holes, and sends documents to the depository within seven working days. The depository submits to RBI for credit to its CSGL account. Partial demat of a certificate is not allowed.
- Transfer from another SGL: DRF-GS with SGL credit advice and a "Value free transfer" request; the SGL must be registered with PDO Mumbai (prefix "BY"); the counterparty initiates the transfer in RBI's E-Kuber system, and the depository confirms it there.
- Fresh issues in dematerialised form.
RBI trades (NSDL only): purchase/sale with a counterparty in another SGL goes through the depository to RBI; RBI credits or debits the depository's CSGL / SGL-2 account and its current account.
Out of the system. Rematerialisation via RRF-GS, forwarded by the DP within seven days.
Benefits. The depository distributes interest before EOD of the due date once RBI credits it, and redemption before EOD of two days prior to the redemption due date.
A worked example
Illustrative. Mrs Kulkarni holds three things:
| Holding | Where it sits |
|---|---|
| 1,000 equity shares | Her demat account with her DP |
| 500 units of a mutual fund | The same demat account |
| Rs 2,00,000 face value of a Central Government security, bought through her bank's NDS-OM facility | The same demat account - recorded in the depository's Constituent SGL account with RBI |
RBI's books show one line for the depository's CSGL account, with the combined balance of all its investors. The depository's books show Mrs Kulkarni's Rs 2,00,000.
She also has an old physical G-Sec certificate registered in her name with PDO Mumbai. To bring it in:
- She submits a DRF-GS with the certificate and the Form of Transfer (for the full certificate - partial demat is not allowed).
- Her DP endorses the back "Tendered for Cancellation and credit to SGL A/c No. ___, Mumbai", without punching holes, and sends it to the depository within seven working days.
- The depository submits it to RBI; on RBI's confirmation, the balance appears in her demat account.
When the security is due for redemption on 30 September, the depository pays her before end of day on 28 September - two days prior - once RBI has made the funds available.
Why NISM asks about it
Chapter 11 (Special Services - Debt Instruments and Government Securities, 10% weightage) builds the government securities section around Primary SGL, Secondary SGL and the depositories' CSGL accounts, with demat, SGL transfers, RBI trades, IDTs, corporate benefits and remat all passing through the CSGL. Its review questions ask who resolves remat mismatches for G-Secs (the DP, per section 11.4.4) and whether an investor holding balances in the depositories' "SGL-1" account can rematerialise them. The body text calls it the depositories' Constituent SGL account, headed "SGL II", so read that question's wording carefully.
Common exam traps
- Primary SGL is for the holder's own investments only; constituents' holdings go through Secondary SGL/CSGL.
- One demat account can hold equity, MF units and G-Secs.
- RBI's records show the depository's consolidated balance; the depository keeps each investor's holding.
- No hole-punching on G-Sec certificates, unlike other securities; send within seven working days.
- SGL prefix "BY" means registered with PDO Mumbai.
- Interest by EOD of due date; redemption by EOD two days before due date.
- Watch the SGL label. The chapter text uses "Constituent SGL account" and "SGL II" (and "SGL-2" for RBI trades); a review question uses "SGL-1".
- RBI trade settlement through the depository is not enabled at CDSL.
Check yourself
1.A Clearing Corporation of a stock exchange shall not be permitted to open beneficiary accounts for clients, except when:
- a)It has approval from SEBI
- b)It has received special approval from RBI to offer the Constituent SGL account facility
- c)It is handling government securities settlement
- d)It is registered as a depository participant
Show the answer
Answer: (b) It has received special approval from RBI to offer the Constituent SGL account facility
The rule is stated with a single exception: a Clearing Corporation of a stock exchange shall not be permitted to open beneficiary accounts for clients, except where it has been permitted by RBI to offer Constituent SGL account facility to the investors.
The permission comes from the RBI, not SEBI — which rules out option A.
Option C is close enough to be dangerous. Constituent SGL accounts do relate to government securities, but the test is not what the CC happens to be settling; it is whether RBI has permitted it to offer that specific facility to investors.
Option D confuses two roles. A clearing corporation or a clearing house of a stock exchange is one of the ten categories eligible to become a DP — but being a DP does not lift this particular restriction on opening beneficiary accounts as a clearing corporation.
2.An entity offers a Secondary SGL facility to investors who are not eligible for a Primary SGL account. How are the holdings maintained?
- a)Each investor gets his own SGL account directly with RBI
- b)The entity uses its Primary SGL account for both its own investments and its clients' holdings, with no sub-accounts
- c)The entity keeps a separate sub-account for each investor in its books, and the Secondary SGL account with RBI shows the consolidated balance of all account holders
- d)The investors' holdings are shown on physical certificates issued by the entity
Show the answer
Answer: (c) The entity keeps a separate sub-account for each investor in its books, and the Secondary SGL account with RBI shows the consolidated balance of all account holders
The workbook: "Secondary SGL facility is to be used to keep accounts of the constituent investors. In other words, Secondary SGL is used to route investments of clients who are not eligible to directly open Primary SGL accounts. The entity which offers Secondary SGL facility, has to keep sub-accounts for each investor separately in its books; Secondary SGL account with RBI will show the consolidated balances of all account holders."
- A describes a Primary SGL account, which is opened with the RBI directly, and only by entities meeting RBI's eligibility criteria.
- B mixes the two. Primary SGL facility can be used only for own investments of the account holder. Client holdings go through the Secondary SGL.
- D — SGL is the book-entry form, which is the alternative to physical certificates.
An entity permitted to open a Primary SGL account may avail of the Secondary SGL facility as well. The depositories maintain Constituent SGL accounts of investors through their DPs.
3.A depository client purchases government securities from a seller who holds them in an SGL account with another eligible entity. What instruction must the DP execute, and by when?
- a)A rematerialisation instruction, at least one day prior to the day of trade settlement at RBI
- b)A dematerialisation instruction, at least one day prior to the day of trade settlement at RBI
- c)A dematerialisation instruction, on the day of trade settlement at RBI
- d)An inter-depository delivery instruction, on the day of trade settlement at RBI
Show the answer
Answer: (b) A dematerialisation instruction, at least one day prior to the day of trade settlement at RBI
The DP, on the basis of the purchase instruction form, executes a dematerialisation instruction for the quantity of security purchased, at least one day prior to the day of trade settlement at RBI.
The logic is direction of travel, not paper. Securities are entering the depository system from an outside SGL account, so the demat module is used even though no certificate exists. Option A reverses it: on a sale by a depository client, the DP executes a rematerialisation instruction — securities leaving the system — again at least one day prior to the day of trade settlement at RBI.
Options C and D fail on timing. The instruction must be in place a day ahead, because the depository then executes the designated form and submits it to RBI for settlement.
What happens on the day: on settlement day, the RBI credits the Constituent SGL account of the depository and debits its current account for funds. And note the footnote — this facility is not enabled at CDSL.
Where this is taught
Free preparation for NISM Series VIRelated terms
- RematerialisationThe reverse of dematerialisation — the demat account is debited and the issuer prints fresh physical certificates for the same quantity, to be despatched within 30 days.
- Government SecurityA tradeable debt instrument issued by the Central Government or a State Government — treated as free of default risk, and the benchmark against which other rupee interest rates are priced.
- Inter-depository transferA transfer of securities from an account in one depository (NSDL or CDSL) to an account in the other, possible because SEBI regulations require the two depositories to be inter-connected.
- Public Debt OfficeThe RBI office that handles all issue management, settlement, interest distribution and redemption of government securities, and with which physical G-Sec certificates and Primary/Secondary SGL accounts are registered.
- Value Free TransferA transfer of government securities between SGL accounts with no simultaneous movement of funds, used to bring a holder's G-Secs into the depository's CSGL account and for eligible inter-depository G-Sec transfers.
- NDS-OMRBI's anonymous, order-matching electronic trading platform for government securities, now extended — through demat accounts with bank Participants — to retail investors, not only SGL/CSGL account holders.
- Cash corporate actionA corporate action that distributes money - such as dividend or interest - where the depository only tells the issuer who was entitled on the record date, and the issuer or its RTA pays them directly.
- DRF-GSThe demat request form for government securities, submitted with the physical G-Sec certificates and an RBI Form of Transfer, or with an SGL credit advice to move SGL holdings into the depository.
- E KuberRBI's core banking system for government securities, through which an SGL counterparty initiates a transfer request when securities move into a depository's Constituent SGL account.
- Primary SGLA Subsidiary General Ledger account opened directly with RBI by an entity meeting RBI's eligibility criteria, usable only for that entity's own government-securities investments.