RBI Expands CDS Scope to Unlisted Bonds and Short-Term Paper

What changed

Previously, CDS were allowed only on listed corporate bonds. Now, unlisted but rated corporate bonds are also eligible, even for non-infrastructure issuers. Additionally, securities with original maturity up to one year—such as Commercial Papers, Certificates of Deposit, and Non-Convertible Debentures—can serve as reference/deliverable obligations. Unwinding rules were clarified: bought CDS positions can be unwound with the original protection seller at a mutually agreed price or FIMMDA price; if no agreement, FIMMDA price applies.

What it means for you

Banks and lenders can now hedge credit risk on a broader set of corporate exposures, including unlisted bonds and short-term paper, improving risk management flexibility. The clear unwinding mechanism reduces counterparty disputes and enhances liquidity in the CDS market. This move supports deeper corporate bond market development and may encourage more active credit risk transfer among market participants.

What banks were required to do at the time

• Update internal CDS policies to include unlisted rated corporate bonds and short-term instruments as eligible reference obligations.
• Train trading and risk teams on the new unwinding process—mutual agreement or FIMMDA price with fallback to FIMMDA.
• Review existing credit exposures to identify opportunities for CDS hedging on newly eligible instruments.
• Ensure compliance with consolidated guidelines in the Annex to the circular effective January 7, 2013.

Who it affects

Banks and primary dealers active in corporate bond markets, Mutual funds and insurance companies using CDS for credit risk management, Corporate treasuries issuing short-term paper (CPs, CDs, NCDs), FIMMDA and market infrastructure providers