Whalesbook
The Reserve Bank of India (RBI) is keeping bond trading and settlement domestic on its NDS-OM platform, despite recent tax cuts meant to attract foreign capital. While global investors often prefer international settlement systems like Euroclear for ease, the RBI maintains that domestic settlement is crucial for better price discovery and market depth. This strategic decision comes as India continues to actively open its bond market to global investors.
What Happened
The Reserve Bank of India (RBI) has reinforced its preference for the Negotiated Dealing System-Order Matching (NDS-OM) platform as the primary venue for trading and settling Indian government securities (G-Secs). Despite recent policy moves to attract foreign capital, including the elimination of long-term capital gains and withholding taxes on certain government bond investments, the central bank remains committed to keeping the settlement process within India’s domestic infrastructure.
NDS-OM is an electronic, anonymous trading system owned by the RBI and operated by the Clearing Corporation of India (CCIL). It allows participants to trade government bonds with transparency and efficiency. The RBI's stance indicates that even as the government relaxes tax barriers, the structural process for how these bonds are traded and settled will remain localized.
The Debate: Global Ease vs. Local Depth
For many years, international investors have expressed a preference for settlement through global clearing platforms like Euroclear. These platforms allow them to trade Indian bonds using the same systems they use for other global markets, which offers significant operational ease. However, the RBI has consistently held a different view.
The central bank’s main concern is liquidity fragmentation. If trading happens on scattered international platforms, it could pull volume away from the domestic market. By funneling all trades through the NDS-OM, the RBI ensures that price discovery—the process of determining the fair value of a bond—happens within the domestic system where the bulk of the liquidity resides. The RBI believes this centralisation creates a more level playing field and ensures a deeper, more robust market for sovereign debt.
The Recent Policy Context
This development is significant because it arrives alongside a major push to deepen India's bond market. As of June 2026, the government has moved to remove fiscal friction by scrapping capital gains and withholding taxes for eligible foreign investors. These changes are part of a broader effort to boost inflows into Indian sovereign debt and support the rupee, which has faced pressure from global macroeconomic shifts.
While tax changes make Indian bonds more competitive from a return perspective, the settlement policy shows that the RBI is balancing these incentives with the need to maintain oversight and control over the domestic financial ecosystem. Essentially, the government is lowering the cost of entry, but the RBI is directing how that entry occurs to ensure market stability.
How Investors May Read This
Investors should note that the push for domestic settlement does not necessarily hinder foreign interest. Major global trading platforms, such as MarketAxess and Bloomberg, have already begun integrating their systems with the NDS-OM. This allows foreign investors to access the Indian market through their preferred global interfaces while still clearing trades through India’s domestic infrastructure.
This hybrid approach acts as a bridge: global investors get the ease of a familiar front-end interface, while the underlying settlement remains compliant with RBI’s domestic requirements. This suggests that the current system is evolving to meet the needs of global participants without requiring a move to an offshore platform like Euroclear.
What Investors Should Track Next
The most important monitorable for investors is the trend in foreign portfolio investment (FPI) inflows following the recent tax adjustments. Analysts and market participants will be watching to see if these structural and tax-related changes lead to a sustained increase in foreign holdings of Indian G-Secs. Additionally, any updates regarding the inclusion of Indian bonds in major global bond indices will remain a key trigger for market sentiment, as index providers typically look for a combination of tax efficiency and operational accessibility.