RBI proposes Interest Rate Derivatives

RBI proposes Interest Rate Derivatives


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The Reserve Bank of India (RBI) has now proposed to introduce exchange-traded and over-the-counter (OTC) interest rate derivatives products that would be accessible to both foreign investors and retail participants.

  • Retail participants can, however, only use the product for hedging, while non-retail participants can use it for any purpose.
  • In a draft guideline released on its website, the central bank said retail participants can be allowed to trade on Forward Rate Agreement (FRA), Interest Rate Swap (IRS), and European Interest Rate Options (IRO), including caps, floors, collars and reverse collars, while non-retail traders can take exposure in swaptions and structured derivative products, excluding leveraged derivatives and derivatives on derivatives.
  • Presently, only interest rate futures and interest rate options are allowed on government securities.
  • Now, with the introduction of many more IRF products, corporate debt could also be incorporated for making derivatives over time, say experts.
  • Foreign Portfolio Investors (FPIs) would be allowed to transact in permitted exchange-traded interest rate derivatives (IRD) for a collective Rs 5,000 crore in net long positions.
  • Also, the RBI report added that the net short position of an FPI on exchange-traded IRDs shall not exceed its long position in government securities and other rupee debt securities.

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