What changed
RBI introduced an aggregate limit of 5% of outstanding corporate bonds for CDS protection sold by all FPIs, with CCIL tracking utilisation. Debt instruments received or bought for physical settlement of CDS now count under corporate bond investment limits, but are exempt from minimum residual maturity, short-term, concentration, and single/group investor limits.
What it means for you
Banks and market makers must monitor FPI CDS positions against the 5% aggregate limit and report to CCIL. The exemption from maturity and concentration norms for settlement-related debt instruments simplifies FPI participation, but the limit cap may constrain hedging activity. Banks dealing with FPIs need to update their systems and compliance processes accordingly.
What you must do
- Update internal systems to track FPI CDS protection sold against the 5% aggregate limit on corporate bonds.
- Ensure timely reporting of OTC CDS transactions to CCIL for limit utilisation dissemination.
- Advise FPI clients on the new limit and settlement-related debt instrument treatment.
- Review and adjust FPI investment limit monitoring for physical settlement scenarios.
Who it affects
Authorised Persons (banks) dealing with FPIs, Foreign Portfolio Investors (FPIs), Market makers in OTC CDS, Clearing Corporation of India Ltd. (CCIL), Stock exchanges
What is the aggregate limit for CDS protection sold by FPIs?
The aggregate notional amount of CDS sold by all FPIs cannot exceed 5% of the outstanding stock of corporate bonds, as specified by RBI.
Are debt instruments from physical CDS settlement subject to normal FPI investment limits?
Yes, they count toward corporate bond investment limits, but are exempt from minimum residual maturity, short-term, concentration, and single/group investor limits.
When do these operational instructions take effect?
These directions come into effect from May 9, 2022.