RBI releases Draft Reserve Bank of India (Credit Derivatives) Directions, 2021.

The Reserve Bank of India vide its notification dated 15^th February 2021 has notified the Draft Reserve Bank of India (Credit Derivatives) Directions, 2021 which shall be applicable to credit derivatives transactions undertaken in Over-the-Counter (OTC) markets and on recognized stock exchanges in India.

Key Highlights from the directions.

1. A person resident in India and non-resident, to the extent specified in these Directions shall be eligible to participate in credit derivatives market.
2. Market-makers and users may undertake transactions in single-name CDS contracts and they shall not deal in any structured financial product with a credit derivative as one of the components or as an underlying.
3. The following entities shall be eligible to act as market-makers in credit derivatives:
   1. Scheduled Commercial Banks (SCBs), except Small Finance Banks, Payment Banks, Local Area Banks and Regional Rural Banks;
   2. Non-Bank Financial Companies (NBFCs), including Housing Finance Companies (HFCs), with a minimum net owned funds of ₹500 crore as per the latest audited balance sheet and subject to specific approval of the Department of Regulation (DoR), Reserve Bank.
   3. Standalone Primary Dealers (SPDs) with a minimum net owned funds of ₹500 crore as per the latest audited balance sheet and subject to specific approval of the Department of Regulation (DoR), Reserve Bank.
   4. Exim Bank, National Bank of Agriculture and Rural Development (NABARD), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI).
4. Market-makers and users shall not buy/sell protection on reference entities if there are regulatory restrictions on assuming similar exposures in the cash market or in violation of any other regulatory restriction, as may be applicable.
5. Market-makers shall report all OTC CDS transactions within 30 minutes of the transaction, to the trade repository of Clearing Corporation of India Ltd. (CCIL). While reporting transactions between market-makers and users, it should be clearly indicated whether the transaction is for hedging or other purposes and In case a market participant assigns a CDS contract to any other market participant, the market-maker in the assigned contract shall report such assignment to the trade repository of CCIL.
6. Participants in the credit derivatives market shall furnish any information relating to credit derivatives transactions to the Reserve Bank or any other agency as may be specified by the Reserve Bank in the manner and format and within the time frame as may be specified by the Reserve Bank.

RBI has invited comments on the Draft Directions from banks, market participants and other interested parties by March 15, 2021, and the feedback on the directions shall be forwarded to the Chief General Manager, Reserve Bank of India, Financial Markets Regulation Department
9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001 Or by email with subject line “Feedback on Draft Reserve Bank of India (Credit Derivatives) Directions, 2021”.