RBI moots reporting platform for CP, CD

To promote transparency in the secondary market for short term instruments, the Reserve Bank of India today proposed to introduce a reporting platform for deals in commercial paper and deposit certificates.

“There is a large market for commercial deposits and commercial paper, but little transparency in secondary market trades. Hence to promote transparency in transactions for CDs and CPs, it has been proposed to introduce a reporting platform for all secondary market transactions, RBI said in its annual monetary and credit policy for 2010-11.

Fixed Income Money Market and Derivatives Association of India (FIMMDA) will develop a platform similar to its existing platform for corporate bonds. Eventually, once the reporting system comes into effect, a settlement mechanism may be put in place. This settlement mechanism would be similar to the one for OTC market in corporate bonds.

Manish Sarraf, head of treasury with Dhanlaxmi Bank, said there will be more information available in the public domain about the deals in these financial instruments.

The CP market is expected to see an increase in activity after banks move to the base rate regime — the system of pricing loans on basis of Benchmark Prime Lending rate (BPLR) — from July 01, 2010. Banks have been barred from lending below the base rate, providing room for non-banking entities like mutual funds and finance companies.

Referring to Over the Counter (OTC) transactions in derivatives, RBI said it will set up a working group that would finalise the modalities for an efficient, single-point reporting mechanism for all OTC interest rate and Foreign Exchange derivative transactions. The working group would have representatives from RBI, Clearing Corporation of India (CCIL) and other market players.

The issue of transparency and the need for information repositories for transactions in OTC derivatives have assumed sharper focus in the post-crisis scenario. RBI said centralised reporting of OTC trades in interest rate derivatives (interest rate swap and forward rate agreements) commenced in August 2007 CCIL platform.

It is necessary to extend the existing reporting arrangement in respect of IRS to all OTC interest rate and foreign exchange derivatives to capture the trade data pertaining to all OTC derivative transactions for regulation, surveillance and transparency.

RBI said the revised guidelines for accounting of repo/reverse repo transactions were issued on March 23, 2010. The revised accounting guidelines capture the economic essence of repo as a collateralised lending and borrowing instrument and not as outright sale and purchase.