Reserve Bank Governor said in New Delhi on Friday that RBI would introduce forward contracts in Government securities for which the directions will be issued shortly.
We have received feedback on the need to permit forward contracts in Government securities to facilitate further development of the market. Such forward contracts will enable long-term investors such as insurance funds to manage their interest rate risk across interest rate cycles. They will also enable efficient pricing of derivatives that use bonds as underlying instruments," the RBI Governor said.
Over the past few years, the Reserve Bank has been enlarging the suite of interest rate derivative products available to market participants to manage their interest rate risks. Beyond just Interest Rate Swaps, other products such as Interest Rate Options, Interest Rate Futures, Interest Rate Swaptions, Forward Rate Agreements, and more are offered to market participants.
Directions in this regard were issued in December 2023. The final directions, taking into account the public feedback, will be issued shortly, Malhotra added.
The Reserve Bank of India (RBI) on December 28 released the draft directions on bond forwards in government securities with an aim to expand interest rate derivative products in the market.
The draft directions on contracts to deliver government securities on a forward basis are aimed at facilitating market participants, especially long-term investors, in managing their cash flows and interest rate risk.
Comments on the draft directions were invited from banks, market participants, investors, and other interested parties by January 25, 2024.
Malhotra also announced that the RBI has decided to allow SEBI-registered non-bank brokers access to NDS-OM on behalf of their clients.
He said that necessary instructions for implementing the move were being issued separately.
The Negotiated Dealing System – Order Matching (NDS-OM) is an electronic trading platform for secondary market transactions in government securities. Access to NDS-OM is, at present, available to regulated entities and to the clients of banks and standalone primary dealers.
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