RBI steps to boost trading in corporate bond futures

With an eye on deepening the financial markets, the Reserve Bank of India (RBI) on Tuesday initiated further steps to boost trading in interest rate futures on government bonds.

It will shortly issue the final guidelines on basic credit default swaps (CDS) for corporate bonds. The product will be launched once the necessary market infrastructure is in place. In October 2009, it had announced plans to introduce plain over-the-counter CDS for corporate bonds for resident entities.

The period of short sale in government securities will be extended from the existing five days to a maximum of three months. This is expected to provide a fillip to the interest rate futures and the term repo market.

RBI, in February 2006, had permitted intra-day short selling in central government securities. Subsequently, the period of short sale was extended to five days in January 2007.

The central bank also allowed foreign institutional investors to cancel and rebook up to 10 per cent of the market value of the portfolio as at the beginning of the financial year. This is expected to bring new a class of investors and broad-base the trading activity.