Skip to main content

RBI proposes margins on non- centrally cleared derivatives

By
The Reserve Bank of India ( RBI) on Monday proposed to charge margins on over- the- counter derivatives not cleared by a central counter- party.
A central counter- party like Clearing Corporation of India Ltd ( CCIL) takes margins from both parties and guarantees a deal. In the absence of this, parties entering into a contract set aside margins between themselves after signing standardised agreements.
India is part of an effort to set global standards to ‘ ring- fence’ the economy from risky derivatives that encourage excessive and opaque risk- taking. By these standards, all over- thecounter derivatives should be traded on exchanges, if possible, or such contracts should be cleared by a central counterparty.
So, non- centrally cleared derivatives should be subjected to higher capital requirements and attract margin requirements.
Apart from de- risking the system, this will also promote central clearing, RBI’s discussion paper said. “ For the time being, it is proposed to apply the margin requirements, in a phased manner, to all financial entities ( like banks, insurance companies, mutual funds, etc) and certain large non- financial entities. The latter will, for this purpose, be entities having aggregate notional amount of outstanding non- centrally cleared derivatives at or more than Rs.1 lakh crore, at a consolidated groupwide basis.” The exchange of initial margin will be applied with a threshold of Rs.350 crore, made applicable on a consolidated group level. There are many such instruments that are cleared through CCIL but also without involving a counterparty.
For example, currency and interest rate swaps might or might not involve a central counter- party, said a person who worked closely with CCIL on such derivatives. Such noncentrally cleared derivatives can include various forms of interest rate swaps ( like overnight index swaps), foreign currency swaps ( for example, dollar interest rate swaps), etc. In India, all interbank foreign exchange forwards are cleared through a central counter- party, while banks are not permitted to transact in equity and commodity derivatives.
Business Standard New Delhi,3rd May2016

Comments

Post a Comment

Popular posts from this blog

Data storage norm splits digital payments industry

By
Data storage norm splits digital payments industry  India’s nascent digital payment industry could be thrown into disarray due to the demand by the Reserve Bank of India (RBI) that all user data be stored within the country, fears an industry grouping, which has termed the decision as “heavy-handed”, even as others, including the country’s largest digital payment provider Paytm, have hailed the move.  In a bid to narrow the growing schism, the industry is planning to send a formal representation to the regulator highlighting its concerns, a top official told ET.  “We are trying to build a consensus on the issue," said the person adding that the representation to the central bank will be ready this week.  RBI on April 6, mandated all payment companies—global and local—to set up data storage facilities within India by October. The stringent six-month deadline has attracted the ire of several sections of the industry that fear it will lead to a disruption of wel...
18 comments
Read more

Offer’s for all of you

By
Great Bumper Dhamaka Offer’s for all of you... It's Time to see your Business Online, WebeCreator Offer Website Designing with domain & Email @ nominal charges. For a year For More information visit us http://goo.gl/KlpppF call on 9890151261/9773197533  drop a mail to sales@webecreator.com
Post a Comment
Read more

Sebi to finalise options in commodities today

By
The Commodity Derivatives Advisory Committee of the Securities and Exchange Board of India ( Sebi) will meet on Friday with senior officials of the latter, to give a final shape to the rules on options trading in commodity futures, beside revising the warehousing norms to ensure good delivery on settlement. The decision taken, after discussing with the advisory committee, will be placed before the regulator’s board, to finalise the regulations. According to knowledgeable sources, three commodities in each segment, agricultural and non- agricultural, have been proposed for introducing options. It appears commodities from the soya and guar segments are preferred in the former. From the non- agri segment, it is likely that gold, silver and crude oil will be finalised. All these These have better liquidity and both the National Commodity and Derivatives Exchange and the Multi Commodity Exchange, respectively, will be able to introduce the options. In the equity segments, options ar...
17 comments
Read more