Banks will soon have to report all transactions in debt and forex derivatives on a single platform, paving the way for better and transparent price discovery in the market as policymakers try to put to use the learnings from the recent global financial crisis.
A single-point mechanism for reporting of money market instruments like commercial papers, issued by companies, and certificates of deposit (CDs) is also on the cards, according to RBIs annual statement.
RBI, in the meantime, has promised the introduction of several new instruments such as bond futures of newer tenure, credit default swaps and exchange-traded currency options in the coming days.
The central bank moves come at a time when regulators across the globe are working on tightening rules relating to the issuance of complex derivative products. These products have been squarely blamed for precipitating one of the biggest financial crises ever. Banks found themselves saddled with complex derivative instruments and had to write off billions of dollars in the process.
RBI hopes that by mandatory reporting of all transactions, the valuation of securities will be more accurate. The reporting will be a step towards settlement and trading of all derivatives on the screen.
To capture the trade data pertaining to all over-the-counter (OTC) derivative transactions for regulation, surveillance and transparency purposes, it is necessary to extend the existing reporting arrangement to all OTC interest rate and forex derivatives, said RBI in its annual policy statement on Tuesday.
These measures will enhance the transparency in the overall system and also provide a window to RBI to monitor movements in rates, said State Bank of India chairman OP Bhatt.
An RBI-appointed group is also in the process of finalising a framework for the introduction of plain vanilla over-the-counter (OTC) credit default swaps for corporate bonds. Such instruments allow market participants to buy protection against the risk of a company defaulting on its bonds.
The regulator said it is still working on framing regulations on forex derivatives for companies that face exchange rate risks. It proposes to issue final guidelines by June-end. It will by then also put out the final rules pertaining to its proposed ban on certain short-term securities of less than one-year duration but with daily put call options.
The regulator is also working on interest rate futures on 2- and 5-year notional bonds and 91-day treasury bills.