Draft RBI (Credit Derivatives) Directions, 2021

Last updated: 18 February 2021

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The Reserve Bank of India has released draft Directions for Credit Derivatives (CDS) in 2021, superseding previous circulars. These directions apply to CDS transactions in Over-the-Counter (OTC) markets and on recognised stock exchanges in India. They outline definitions, eligible participants, permitted products, and operational guidelines for market-makers and users, including specific classifications for retail and non-retail users. The draft also details procedures for credit events, settlement, and reporting, aiming to standardise and regulate the credit derivatives market.

RESERVE BANK OF INDIA FINANCIAL MARKETS REGULATION DEPARTMENT 9TH FLOOR, CENTRAL OFFICE BUILDING, FORT MUMBAI 400 001 Reserve Bank of India (Credit Derivatives) Directions, 2021 Draft In exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934 (hereinafter called the Act) read with section 45U of the Act and in supersession ofCircular No. IDMD.PCD.No.10/14.03.04/2012-13 dated January 07, 2013, the Reserve Bank of India (hereinafter called the Reserve Ba

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FAQ :

These are draft directions issued by the Reserve Bank of India to regulate credit derivative transactions in Over-the-Counter (OTC) markets and on recognised stock exchanges in India, superseding earlier circulars.

Eligible participants include persons resident in India and non-residents, to the extent specified in the directions.

Market-makers and users may undertake transactions in single-name CDS contracts. However, they are not permitted to deal in any structured financial product that includes a credit derivative as a component or underlying.

Non-retail users, such as insurance companies, pension funds, and mutual funds, can undertake CDS transactions for both hedging and other purposes. Retail users are restricted to using CDS for hedging their underlying credit risk only.

The occurrence of a credit event and the procedure for determining the reference price for cash settlement will be managed by a Credit Derivatives Determinations Committee set up by FIMMDA. CDS contracts can be cash or physically settled, with mandatory physical settlement for contracts involving retail users.

Market-makers are required to report all OTC CDS transactions to the trade repository of the Clearing Corporation of India Ltd. (CCIL) within 30 minutes of the transaction. Assignments of CDS contracts must also be reported.