What changed
Previously, only banks with AD Cat-I license could offer FCS-OIS to non-residents and other AD Cat-I banks. Now, stand-alone primary dealers (SPDs) authorized under section 10(1) of FEMA have also been granted this eligibility. The instructions are applicable with immediate effect.
What it means for you
This move broadens the participant base in the rupee interest rate derivatives market, allowing SPDs to hedge and trade more freely. For banks, it increases counterparty options and liquidity in FCS-OIS, potentially improving risk management and pricing efficiency.
What you must do
- Update internal policies to recognize SPDs as eligible counterparties for FCS-OIS transactions.
- Ensure compliance with FEMA and RBI directions when dealing with SPDs in these swaps.
- Review risk management frameworks to account for expanded derivative trading with SPDs.
Who it affects
Stand-alone primary dealers (SPDs), Banks with AD Cat-I license, Non-resident entities trading in rupee derivatives
Why did RBI extend this to SPDs?
As announced in the August 2022 monetary policy statement, to permit SPDs to deal in FCS-OIS.
Does this circular replace earlier directions?
No, it reviews and updates the 2019 Rupee Interest Rate Derivatives Directions. Note that these directions have since been superseded by the 2025 Master Direction.