What changed
RBI has issued final Directions for bond forwards in government securities, effective May 2, 2025, after public feedback on the December 2023 draft. The Directions define bond forwards, cash settlement, covered short positions, and update the Master Directions on OTC derivatives market-makers and margining.
What it means for you
Banks and eligible market participants can now enter into OTC forward contracts on government securities, enabling better hedging and price discovery. The updated margining and market-maker directions will require operational adjustments for compliance by the effective date.
What you must do
- Review the final Directions and updated Master Directions on OTC derivatives market-makers and margining.
- Prepare systems and processes for bond forward transactions by May 2, 2025.
- Ensure compliance with definitions for covered short positions and cash settlement.
- Train relevant treasury and risk teams on the new bond forward framework.
Who it affects
All eligible market participants in the OTC bond market, Market-makers in OTC derivatives, Banks and primary dealers dealing in government securities, Clearing and settlement entities
What is a bond forward under these Directions?
A bond forward is a rupee interest rate derivative where one party agrees to buy a specific government security from another at a future date at a pre-agreed price.
When do these Directions take effect?
The Directions come into force from May 2, 2025.
Do these Directions apply to treasury bills?
No, government securities for these Directions exclude treasury bills.