What changed
RBI finalised the operational framework for plain vanilla OTC single-name CDS on corporate bonds, based on an Internal Group's recommendations. Draft guidelines were released for public comment in February 2011, and the final version incorporates feedback from banks, PDs, and other market participants.
What it means for you
Banks and primary dealers can now trade credit default swaps on corporate bonds, enabling better credit risk management and hedging. The guidelines standardise the market, but participants must ensure compliance with the detailed framework to avoid regulatory issues.
What you must do
- Review the final CDS guidelines in the Annex to understand eligibility, documentation, and risk management requirements.
- Update internal policies and systems to accommodate CDS trading by the effective date of October 24, 2011.
- Train relevant staff on the operational and compliance aspects of plain vanilla OTC single-name CDS.
- Coordinate with counterparties to ensure adherence to the new framework.
Who it affects
All scheduled commercial banks, Primary dealers, Other market participants dealing in corporate bonds
When do the CDS guidelines become effective?
The guidelines become effective from October 24, 2011.
What type of CDS is covered by these guidelines?
The guidelines cover plain vanilla OTC single-name credit default swaps on corporate bonds.
Were market participants consulted before finalising the guidelines?
Yes, draft guidelines were placed on the RBI website on February 23, 2011, and comments from banks, PDs, and other market participants were incorporated into the final version.