The Reserve Bank of India vide its notification dated 16th September 2021 has notified the Master Direction – Reserve Bank of India (Market-makers in OTC Derivatives) Directions, 2021 which shall come into force from 3rd January 2022.
The Directions shall apply to entities permitted to act as market-maker in OTC derivatives in terms of the Governing 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 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 a user in the assessment of the market-maker, the user shall be informed of the opinion. If the user nonetheless wishes to proceed, the market-maker shall document its analysis and its discussions with the user. The approval for such transactions shall be escalated to next higher level of authority at the market-maker as also for the user.
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.
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.
