 "RBI, Reserve Bank of India")
The Reserve Bank on Thursday came out with its master directions for credit derivative transactions, a year after it released the draft guidelines.
The directions issued on Thursday will apply to credit derivatives transactions undertaken in Over-the-Counter (OTC) markets and on recognised stock 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.
Scheduled commercial banks, excluding small finance banks, payments banks, local area banks and regional rural banks, along with mom bank lenders above certain size and the state-run 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 eligible to act as market-makers in credit derivatives.
Users will be classified by market-makers either as retail or non-retail for the purpose of offering credit derivative contracts, and the non-retail ones will include non-market-maker NBFCs, insurance companies, pension funds, mutual funds, alternate investment funds, resident companies with over Rs 500 crore in networth and Sebi-registered foreign portfolio investors.
The directions said the Fixed Income Money Market and Derivatives Association of India (FIMMDA), in consultation with market participants and based on international best practices, will be devising standard master agreements for the Indian CDS (credit default swaps) market which shall include credit event definitions and settlement procedures.
FIMMDA should publish the trading conventions for CDS contracts, including standard maturity and premium payment dates, standard premiums, upfront fee calculation methodology, accrual payment for full first premium, quoting conventions and lookback period for credit events, it said.
Market-makers are required to report all OTC CDS transactions within 30 minutes of the transaction, to the trade repository of Clearing Corporation of India and also all unwinding, novation, settlement transactions, and any credit, substitution or succession event to the trade repository of CCIL, as per an official statement.
Governor Shaktikanta Das had earlier in the day announced that the RBI will be coming out with the final guidelines on CDS, which were first introduced in 2013. He said the guidelines will be aimed for the development of a liquid market for corporate bonds, especially for the bonds of lower rated issuers.
Meanwhile, the RBI also reopened allotment of investment limit under the Voluntary Retention Route (VRR) for Investments by Foreign Portfolio Investors, as per the announcement by Das.
It said an amount of Rs 1,50,000 crore was offered for investment through VRR in three tranches so far, of which around Rs 1,49,995 crore have been availed as on Thursday.
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