The initiative is aimed at shifting the largely over-the-counter (OTC) bond forward market to a central clearing framework, a move seen as improving transparency, strengthening risk management, and widening participation.
The bond forward market allows participants to buy or sell bonds — typically government securities — at a pre-agreed price for settlement at a future date. Unlike spot transactions, these contracts are primarily used to lock in yields or hedge interest rate risk without the immediate exchange of securities.
“A system like CCIL would be very apt if we want wider participation from private and nationalised banks,” a market participant said, adding that industry players have been engaging closely with the clearing corporation to operationalise the platform.
CCIL, which provides clearing and settlement services across money, government securities, and foreign exchange markets, has already held multiple rounds of discussions with stakeholders. While the core system is largely in place, refinements are required to accommodate the specific dynamics of the bond forward market, including participation from insurers, corporates, and banks.
“In a matter of time, the entire bond forward portfolio market is expected to shift to CCIL,” said another person familiar with the development. “We would prefer that route because the settlement system is separate, margining is robust, and reporting will be far cleaner.”
The bond forward market, estimated at ₹4 trillion-₹4.5 trillion, remains dominated by foreign banks, which account for nearly 85-90 per cent of activity. Market participants said this concentration has constrained broader participation from domestic institutions, including private sector and public sector banks.
“The system is almost ready, but it needs some tweaks given the nature of the market and the range of participants involved,” a source said.
Market participants indicated that initial traction could emerge over the next three months, although a full transition to central clearing is expected to be gradual.
The proposed platform is expected to standardise processes such as initial and variation margining, settlement, and trade reporting — areas that are currently fragmented in the bilateral market. Analysts say this could deepen the market and improve risk visibility, particularly as volumes continue to grow.
The development also aligns with broader regulatory efforts to strengthen market infrastructure and reduce counterparty risk in non-cash segments of the fixed income market.
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