Tuesday May 10 2016

News Source: Global Exchanges

Focus: Derivative Market Segment

Type: General




The Reserve Bank of India (RBI) has issued a Discussion Paper on margin requirements for non-centrally cleared derivatives. The G20 Group of countries recently called on the international standard setting bodies to reform the derivatives markets to ensure that systemic risk concerns arising from derivatives markets were contained. The following reforms were implemented:

  • All standardised OTC derivatives should be traded on exchanges or electronic platforms, where appropriate;
  • All standardised OTC derivatives should be cleared through central counterparties (CCPs);
  • Non-centrally cleared derivatives should be subjected to higher capital requirements and these derivatives should also attract margin requirements.

The RBI has taken a number of initiatives to implement these global reform measures. All inter-bank forex forward transactions are now being cleared through Clearing Corporation of India Limited (CCIL), a CCP which is regulated and supervised by RBI. With the implementation of Basel III, capital requirements applicable to banks for non-centrally cleared derivative transactions have become much higher in comparison to what is applicable to centrally cleared transactions through qualifying CCPs. However, in India, exchange of margins by the counterparties to a non-centrally cleared OTC derivative is not widely prevalent.

The Basel Committee on Banking Supervision (BCBS) along with International Organisation of Securities Commissions (IOSCO), in March 2015, finalised a policy framework which establishes minimum standards for margin requirements for non-centrally cleared derivatives. This policy framework is contained in the document entitled Margin Requirements for Non-centrally Cleared Derivatives. These requirements will be implemented in a phased manner over a period of four years (starting from September 1, 2016 with full implementation by September 1, 2020).

The document discusses the introduction of margin requirements for non-centrally cleared derivatives in India. Most proposals are in line with BCBS-IOSCO standards.

RBI has invited feedback/comments on the policy proposals contained in the document, especially on the specific questions raised. Feedback/comments should be submitted by 3rd June 2016.

Click on the link above for further details.