The Reserve Bank released its primary guidelines for credit derivatives trading on Thursday, a year after issuing the draft guidelines.
The instructions issued on Thursday will apply to credit derivative transactions carried out on over-the-counter (OTC) markets and recognized exchanges in India, and will be effective from May 9.
Residents and non-residents who are eligible to invest in corporate bonds and debentures under the Foreign Exchange Management (Debt Instruments) Regulations 2019 will be eligible to participate in the credit derivatives market, it said. he declares.
Scheduled commercial banks, excluding small financial banks, payment banks, local banks and regional rural banks, as well as lenders of parent banks above a certain size and the Export Import Bank of India, National Bank of Agriculture and Rural Development (Nabard), National Housing Bank and Small Industries Development Bank of India (Sidbi) will be able to act as market makers for credit derivatives.
Users will be classified by market makers as retail or non-retail for the purpose of offering credit derivative contracts, and non-retail will include non-market maker NBFCs, insurance companies, pension funds , mutual funds, alternative investment funds, resident companies with more than Rs 500 crore in net worth and foreign portfolio investors registered with Sebi.
The instructions state that the Fixed Income Money Market and Derivatives Association of India (FIMMDA), in consultation with market participants and based on international best practices, will develop standard master agreements for the Indian CDS (credit default swaps) market ) which will include credit event definitions and settlement procedures.
FIMMDA should publish commercial conventions for CDS contracts, including standard premium maturity and payment dates, standard premiums, methodology for calculating initial charges, accrual payment for first full premium, conventions rating and look-back period for credit events, he said.
Market makers are required to report all OTC CDS transactions within 30 minutes of the transaction to the Clearing Corporation of India trade repository, as well as all unwind, novation, settlement transactions and any credit, substitution or succession to CCIL’s central repository, according to an official press release.
Governor Shaktikanta Das had announced earlier in the day that the RBI would release the final CDS guidelines, which were first introduced in 2013. He said the guidelines will be aimed at developing a liquid market for bonds. companies, in particular for the bonds of lower-rated issuers.
Meanwhile, the RBI has also reopened the allocation of the investment limit under the Voluntary Retention Route (VRR) for investments by foreign portfolio investors, as per Das’ announcement.
He said an amount of Rs 1.50,000 crore has been offered for investment through VRR in three tranches so far, of which about Rs 1.49,995 crore was drawn down on Thursday.
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