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    RBI to Issue Directions on Exchange of Margin for OTC Derivatives

    February 06, 2020

    RBI issued a statement that sets out various developmental and regulatory policy measures for improving credit flows to certain sectors, strengthening regulation and supervision, broadening and deepening financial markets, and improving payment and settlement systems. These measures include those related to the liquidity management framework and the margin requirements for non-centrally cleared derivatives.

    Well-established margining arrangements for financial contracts contribute to financial stability by enhancing credibility of the market mechanism and discouraging excessive risk-taking. To improve safety of settlement of the over-the-counter (OTC) derivatives that are not centrally cleared, following the G-20 recommendations, RBI had issued a discussion paper to implement global practices related to margin requirements for such derivatives. The introduction of legislation for netting of financial transactions proposed in the Union Budget 2020-21 would be a significant enabler for efficient margining. It has, therefore, been decided to issue the directions regarding the exchange of variation margin for non-centrally cleared derivatives by the end of March 2020. Draft directions on exchange of initial margin for non-centrally cleared derivatives will be issued by the end of June 2020.

     

    Keywords: Asia Pacific, India, Banking, Securities, Margin Requirements, Non-Centrally Cleared Derivatives, OTC Derivatives, Initial Margin, Variation Margin, RBI

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