What changed
RBI directed that all new INR MIBOR-Overnight Index Swap (OIS) contracts executed from April 1, 2013, must be standardised. Standardisation covers minimum notional principal, tenors, trading hours, and settlement calculations, as prescribed by FIMMDA in consultation with market participants. The requirement is mandatory for all IRS contracts except client trades.
What it means for you
Banks and market participants must align their INR MIBOR-OIS contracts to FIMMDA-prescribed standards, reducing contract heterogeneity. This paves the way for central clearing and settlement, lowering counterparty risk and improving liquidity. Non-client trades will face compliance costs, but the move enhances market efficiency and transparency.
What you must do
- Ensure all new INR MIBOR-OIS contracts from April 1, 2013, adhere to FIMMDA-prescribed standardisation norms.
- Review and update internal systems and documentation to handle standardised contract terms for non-client trades.
- Coordinate with FIMMDA and market participants to align on minimum notional, tenors, trading hours, and settlement calculations.
- Exempt client trades from standardisation but maintain clear internal policies to distinguish client vs. non-client trades.
Who it affects
All market participants dealing in INR MIBOR-OIS contracts, Banks and financial institutions active in interest rate derivatives, FIMMDA and clearing corporations
Which contracts are subject to mandatory standardisation?
All new INR MIBOR-OIS contracts executed from April 1, 2013, must be standardised. Client trades are exempt from this requirement.
Who will prescribe the standardisation parameters?
FIMMDA, in consultation with market participants, will prescribe the minimum notional principal amount, tenors, trading hours, and settlement calculations.
What is the objective behind this standardisation?
To improve tradability and facilitate future centralised clearing and settlement of IRS contracts, thereby reducing counterparty risk and enhancing market efficiency.