RBI liberalises institutional play in OTC derivatives market

With a view to make participation in over-the-counter (OTC) derivatives markets through electronic platforms more broad-based, the RBI today allowed all institutions governed by a financial regulator to trade in interest rate swaps (IRS).
"It has been decided to enable any institutional entities regulated by the RBI, Sebi, Insurance Regulatory and Development Authority, Pension Funds Regulatory and Development Authority and National Housing Bank to trade in IRS on electronic trading platforms," the RBI said in a notification.
The new guidelines will be effective from June 1, the central bank said.
At present, it is necessary that at least one of the two parties in the swap is either a bank or the RBI itself or an entity regulated by it. Any other regulated entities are not allowed to deal in IRS.

The RBI also specified Clearing Corporation of India as an approved counterparty for IRS transactions undertaken on electronic trading platforms where CCIL is the central counterparty.
After getting a go-ahead from its regulator, the entity can apply for membership of electronic trading platforms in IRS which have CCIL as the central counterparty for settlement, the RBI said.
It can be recalled that in the April monetary policy review, the RBI had announced to put in place a policy framework for authorisation of electronic platforms with linkage to an approved central counterparty for settlements, to help broaden participation in OTC derivatives and to provide a safe trading environment.