RBI To Introduce Forward Contracts In Government Securities
RBI To Introduce Forward Contracts In Government Securities
The Reserve Bank of India (RBI) Governor announced on Friday that the RBI will soon introduce forward contracts in government securities, with directions to be issued shortly.
The Governor explained that the move comes in response to feedback highlighting the need for such contracts to aid market development. These forward contracts will help long-term investors, such as insurance funds, manage interest rate risks across cycles and allow for efficient pricing of derivatives that use bonds as underlying instruments.
In recent years, the RBI has expanded the range of interest rate derivative products available to market participants to help manage interest rate risks. In addition to Interest Rate Swaps, products like Interest Rate Options, Interest Rate Futures, Interest Rate Swaptions, and Forward Rate Agreements are available to participants.
The RBI had issued draft directions in December 2023, which invited feedback from market participants. The final directions, after considering public input, will be issued soon.
Additionally, the RBI Governor announced that SEBI-registered non-bank brokers would now be granted access to the Negotiated Dealing System - Order Matching (NDS-OM) platform on behalf of their clients. Separate instructions for implementing this decision are being issued. The NDS-OM is an electronic trading platform for secondary market transactions in government securities, and currently, access is limited to regulated entities, banks, and standalone primary dealers.
