Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022
The Reserve Bank of India has issued directions for credit derivatives in the over-the-counter (OTC) market, effective February 10, 2022.
Eligible Participants: The directions apply to all market participants, including banks, financial institutions, and other entities authorized to deal in credit derivatives.
Permitted Products: The directions permit the trading of credit default swaps (CDS) in the OTC market.
Market-makers and Users: Market-makers are required to register with the Reserve Bank, while users are classified into three categories: sophisticated, moderate, and retail.
Protection Buyers and Sellers: The directions outline the roles and responsibilities of protection buyers and sellers in CDS transactions.
Operational Directions: The directions provide guidelines for buying, unwinding, and settling CDS transactions, including standardization, documentation, customer protection, and reporting requirements.
Credit Derivatives Determinations Committee: A committee will be established to resolve disputes and determine the occurrence of credit events.
Directions for Exchanges: Exchanges are required to establish a framework for trading CDS and ensure compliance with the directions.
Valuation Methodology: The directions outline the methodology for valuing credit derivatives.
Prudential Norms: The directions specify prudential norms for market participants, including capital requirements and risk management guidelines.
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Download: Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022