Reporting forex derivative deals above $100,000 mandatory: RBI

A working group of the Reserve Bank of India has recommended that derivative deals — both forward and swap — worth $1,00,000 or more should be reported to the agency working as repository.

The Clearing Corporation of India Ltd (CCIL) should be made a reporting platform for such over-the-counter (OTC) derivative deals in interest rates and foreign exchange for confidentiality, the RBI group said in its report. The report of RBI's working group on interest rate and forex derivatives is available on RBI's website. The group was headed by P Krishnamurthy, chief general manager, RBI.

Repository services under CCIL may come under a separate entity, subject to economic viability. This would help segregate the repository activity from clearing and settlement activity and ensure better governance and compliance with standards. All interbank forex forward transactions may be reported to CCIL, under the mandate of RBI, which already has a platform for the purpose.

The working group said the non-transparency of the OTC market led to risks in the system. This was widely believed to be one of the causes of the recent financial crisis. While India had arrangements for the reporting of various derivative transactions, there was a need to consolidate the reporting arrangement. Consolidated reporting would improve transparency, facilitate comprehensive monitoring and improve the efficiency of post-trade processing infrastructure. The current system of reporting interbank interest rate swaps (IRS) and forward rate agreements (FRA) transactions to CCIL may be formalised, by reporting to a trade repository. Reporting of client trades in FRA and IRS to CCIL may also be mandated, with the necessary safeguards.