The Reserve Bank of India vide its notification dated 4th December 2020 has published theReserve Bank of India (Market-makers in OTC Derivatives) Directions, 2020 which shall apply to entities permitted to act as market-makers in OTC derivatives in terms of the governing Directions.
Key Highlights from the directions.
- The policy for introduction of new over the counter (OTC) derivative products shall, inter-alia, include the process for evaluation and approval of new products. All new products shall be approved by the Board of Directors.
- The Market-makers shall not deal in a product, either directly or on a back-to-back basis, which they cannot price independently and the details of pricing and periodic valuation methodology of the products shall be documented.
- The product offered to the user shall be consistent with the objective and risk appetite of the user. In case a product is not found suitable for user in the assessment of the market-maker, the user shall be informed of the opinion.
- Policies and procedures shall be established to apply internal controls at various stages in the work flow of processing and monitoring transactions and there shall be clear separation, both functionally and physically, between the front office, which is responsible for the conduct of trading operations and the back office, which is responsible for processing the resultant trades.
- All business, control and monitoring records should be preserved up to the existing statutory retention periods. Wherever statutory retention periods are not stipulated, such records shall be preserved as per the internal policy of the market-maker subject to the condition that they are preserved for at least two years after the life of the product/transaction.
