RBI rolls out Master Direction on Credit Derivatives Transactions in OTC markets; gains effect from 09.05.22 ; NBFCs, SCBs etc. eligible to act as market-makers in credit derivatives
The Reserve Bank of India ( “RBI”) in a circular has issued the Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022. These Directions shall apply to credit derivatives transactions undertaken in Over-the-Counter (OTC) markets and on recognised stock exchanges in India. These Directions shall come into force on May 09, 2022.
The following persons shall be eligible to participate in credit derivatives market:
a. Residents; and
b. Non-residents, who are eligible to invest in corporate bonds and debentures under the Foreign Exchange Management (Debt Instruments) Regulations, 2019 dated October 17, 2019, as amended from time to time.
Market-makers : (i) The following entities shall be eligible to act as market-makers in credit derivatives:
a. Scheduled Commercial Banks, except Small Finance Banks, Payment Banks, Local Area Banks and Regional Rural Banks;
b. Non-Banking Financial Companies (NBFCs), including Standalone Primary Dealers (SPDs) and Housing Finance Companies (HFCs), with minimum net owned funds of ₹500 crore as per the audited balance sheet as on March 31 of the previous financial year and subject to specific approval of the Department of Regulation, Reserve Bank; and
c. Export Import Bank of India, National Bank of Agriculture and Rural Development, National Housing Bank and Small Industries Development Bank of India.
(ii) In case an NBFC, an SPD or an HFC, fails to meet the eligibility criteria subsequent to the receipt of approval for acting as a market-maker, it shall cease to act as a market-maker. The NBFC, SPD or HFC shall continue to meet all its obligations under the existing contracts till the maturity/termination of such contracts.
(iii) At least one of the parties to a credit derivative transaction shall be a market-maker or a central counterparty authorised by the Reserve Bank for the purpose.
For a detailed read please refer to the hyperlink below.
Source : Reserve Bank of India
