RBI Issues Draft on Rupee Interest Rate Derivative (Download PDF)

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RBI Issues Draft on Rupee Interest Rate Derivative

  • The RBI has proposed allowing Foreign portfolio Investors (FPI) to undertake exchange traded rupee interest rate derivatives transactions.
  • These transactions are subject to an overall ceiling of ₹ 5,000 crore.
  • Interest rate Derivatives (IRD) are contracting whose value is derived from one or more interest rates, prices of interest rate instruments or interest rate indices.
RBI Issues Draft on Rupee Interest Rate

Details of Proposal

  • The proposed Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2020 are aimed at
    • Encouraging higher non-resident participation
    • Enhance the role of domestic market makers in the offshore market
    • Improve transparency
    • Achieve better regulatory oversight
  • The net short position of an FPI on exchange-traded IRDs should not exceed its long position in government securities and other rupee debt securities.
  • For the purpose of offering Rupee IRD contracts to a user, the market maker should classify the user either as a retail user or as a non-retail user.
  • The market maker is an entity which provide bid and offer prices to users in order to provide liquidity to the market.
  • Non retail users are entities regulated by RBI, SEBI, IRDAI, PFRDA, resident companies with a minimum net worth of ₹ 500 crore and non-residents, other than individuals.

- Published/Last Modified on: March 10, 2021

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