What changed
Earlier, PDs could undertake securities or derivatives transactions among themselves or with clients through members of BSE, NSE, or OTCEI. Now, for OTC interest rate derivative transactions, if standalone PDs use brokers, they must ensure those brokers are FIMMDA-accredited.
What it means for you
This tightens counterparty standards for OTC derivative trades by standalone PDs, reducing operational risk. Banks dealing with PDs should verify broker accreditation to avoid settlement issues.
What you must do
- Update internal policies to mandate FIMMDA accreditation for brokers handling OTC interest rate derivatives.
- Review existing broker agreements with standalone PDs to ensure compliance.
- Train dealing room staff on the new accreditation requirement.
- Include FIMMDA accreditation checks in pre-trade approval workflows.
Who it affects
Standalone Primary Dealers, Banks transacting OTC interest rate derivatives with PDs
Does this apply to all derivative transactions by PDs?
No, it specifically applies to OTC interest rate derivative transactions. Other securities or derivatives through exchange members remain as per earlier guidelines.
What if a PD uses a non-FIMMDA broker inadvertently?
The circular does not specify penalties, but non-compliance could lead to regulatory action. PDs should ensure strict adherence.