**Executive Summary:**
The Reserve Bank of India (RBI) issued directions regarding Rupee Interest Rate Derivatives in 2019, updated on August 8, 2022, and February 10, 2022. These directions, effective immediately, aim to regulate Rupee interest rate derivatives transactions undertaken on recognized stock exchanges and Over-the-Counter (OTC) markets, including electronic trading platforms (ETPs). The directions specify eligible participants, trading venues, permissible products, and regulatory reporting requirements.
**Key Points / Main Content:**
* **Scope and Commencement:**
* These directions are called the Rupee Interest Rate Derivatives Reserve Bank Directions, 2019.
* They supersede all other directions indicated in Annex I.
* They apply to Rupee interest rate derivatives transactions on recognized stock exchanges, OTC markets, and ETPs.
* They are effective immediately.
* **Definitions:**
* Defines key terms such as Benchmark Interest Rates, Electronic Trading Platform (ETP), Financial Benchmark Administrator (FBA), Foreign Currency Settled OIS (FCSOIS), Forward Rate Agreement (FRA), Hedging, Interest Rate Derivative (IRD), Interest Rate Futures (IRF), Interest Rate Option (IRO), and others.
* **Eligible Participants:**
* Any person resident in India and any nonresident, as specified, is eligible to participate in IRDs.
* Regulated entities must obtain permission from their respective regulators.
* Indian or nonresident parent companies or group companies can transact on behalf of wholly-owned subsidiaries or group companies if they meet nonretail user criteria.
* **Trading Venues:**
* IRD contracts can be transacted on recognized stock exchanges or OTC, including ETPs.
* **Interest Rate Derivatives on Recognized Stock Exchanges:**
* Exchanges can offer any standardized IRD product.
* Exchanges finalize product design and eligible participants.
* Exchanges must obtain prior RBI approval for new IRD products or modifications.
* **Interest Rate Derivatives in the OTC Market:**
* Scheduled Banks, Standalone Primary Dealers (SPDs), and All-India Financial Institutions (AIFIs) can act as market makers.
* Market makers can offer FRA, IRS, and European Interest Rate Options (IRO) to retail users.
* Swaptions and structured derivative products (excluding leveraged derivatives) can be offered to non-retail users.
* Banks with AD Cat-I licenses and SPDs can offer FCSOIS contracts to nonresidents (excluding individuals).
* Users can choose to be classified as retail users.
* Retail user transactions must be for hedging.
* Resident nonretail users can undertake transactions in permitted products for both hedging and otherwise.
* Nonresidents can transact for hedging or other purposes as stipulated.
* Floating rates/indices must be published by an FBA or approved by FIMMDA.
* Settlement can be bilateral or through an RBI-approved clearing arrangement.
* FIMMDA specifies settlement basis and market conventions.
* Market hours are 9:00 AM to 5:00 PM, with exceptions for FCSOIS.
* **Transactions by nonresidents:**
* Nonresidents can undertake Rupee interest rate derivatives transactions in India to hedge its interest rate risk using any product transacted on recognized stock exchanges or listed in paragraph 6b, 6c and 6 d above.
* Marketmakers must ensure that transactions by a nonresident are being carried out for the purpose of hedging.
* **Transactions by Nonresidents for Purposes Other Than Hedging:**
* Nonresidents (excluding individuals) can undertake Overnight Indexed Swaps (OIS) transactions (excluding FCSOIS) directly or via back-to-back arrangements.
* Banks with AD Cat-I licenses and SPDs can undertake FCSOIS transactions with nonresidents for purposes other than hedging through back-to-back arrangements through their foreign branches or through their IBUs.
* OIS transactions are subject to an overall limit of INR 350 crore PVBP cap.
* Foreign Portfolio Investors (FPIs) can transact in interest rate futures (IRF) up to a net long position of INR 5,000 crore.
* **General Conditions:**
* Nonresidents must ensure transactions conform to Section 45V of the RBI Act, 1934, FEMA, 1999, and related rules.
* Payments by nonresidents (excluding FCSOIS) can be routed through INR accounts or vostro accounts.
* Market makers must ensure that nonresident clients are from an FATF compliant country. Marketmakers shall also ensure that nonresident clients comply with the KYC requirements as prescribed under Master Direction Know your Customer Direction, 2016 DBR.AML.BC.No.8114.01.001201516 dated February 25, 2016 as amended from time to time.
* **Conditions Applicable to IRDs on Both Exchanges and in the OTC Market:**
* Market makers must comply with suitability and appropriateness requirements in the Master Direction.
* Exchanges must ensure clients are aware of derivative risks.
* Accounting, valuation, and capital requirements must follow ICAI standards or regulator specifications.
* **Regulatory Reporting:**
* Market makers must report OTC transactions to CCIL within 30 minutes, indicating hedging or other purposes.
* All FCSOIS transactions undertaken by market makers in India through their branches in India or through their foreign branches in case of foreign banks operating in India, through any branch of the parent bank, shall be reported to CCIL’s Trade Repository before 12:00 noon of the following business day.
* Market makers must report trade details, including particulars of the nonresident client for OIS transactions under the back-to-back arrangement, to the trade repository of CCIL.
* Resident users with gross notional outstanding IRD amounts exceeding INR 1,000 crore must report risk positions quarterly.
* Cross-border remittances must be reported monthly.
* **Repeal and Withdrawal:**
* Lists previous circulars repealed and withdrawn, but directions continue to apply to existing contracts.
**Impact Analysis**
* **Market Makers (Scheduled Banks, SPDs, AIFIs):**
* *Impact:* Must adhere to eligibility criteria, product offerings, client classification, and reporting requirements for OTC IRD transactions. Also, must comply with suitability and appropriateness requirements in the Master Direction. Market makers must ensure that nonresident clients are from an FATF compliant country. Marketmakers shall also ensure that nonresident clients comply with the KYC requirements as prescribed under Master Direction Know your Customer Direction, 2016 DBR.AML.BC.No.8114.01.001201516 dated February 25, 2016 as amended from time to time.
* *Action Required:* Classify users, ensure hedging for retail users, report transactions to CCIL, and comply with reporting requirements for cross-border remittances.
* **Users (Retail and Non-Retail):**
* *Impact:* Governed by eligible products, hedging requirements (for retail users), and reporting obligations for large positions.
* *Action Required:* Understand product suitability, ensure hedging compliance, and report risk positions if exceeding the threshold.
* **Non-Residents:**
* *Impact:* Subject to restrictions on OIS transactions, hedging requirements, and reporting obligations.
* *Action Required:* Ensure compliance with FEMA and RBI Act, and adhere to PVBP limits for OIS transactions.
* **Recognized Stock Exchanges:**
* *Impact:* Need RBI approval for new IRD products or modifications.
* *Action Required:* Finalize product design and participant eligibility, and obtain RBI approval before introducing any new IRD product or before carrying out modifications to an existing product.
* **Clearing Corporation of India Ltd. (CCIL):**
* *Impact:* Serves as the trade repository for OTC transactions and monitors PVBP limits for OIS transactions by non-residents.
* *Action Required:* Maintain the trade repository, publish the methodology for calculation of the PVBP and monitor as well as publish utilization of the PVBP limit on a daily basis.
* **FIMMDA:**
* *Impact:* Responsible for approving floating rates/indices used in OTC IRDs and specifying settlement basis and market conventions.
* *Action Required:* Ensure floating rates are transparently determined and specify settlement and market conventions.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the financial system and issuing directions related to Rupee Interest Rate Derivatives.
Rupee Interest Rate Derivatives Reserve Bank Directions, 2019: The primary policy document being analyzed, which outlines the regulations and guidelines for Rupee Interest Rate Derivatives markets.
Financial Markets Regulation Department: A department within the Reserve Bank of India responsible for regulating financial markets.
Mumbai, Maharashtra: The city where the Central Office of the Reserve Bank of India is located.
Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India
Over-the-Counter (OTC): A market where transactions are conducted directly between two parties without the use of an exchange.
Foreign Exchange Management Permissible Capital Account Transactions Regulations, 2000: Regulations pertaining to permissible capital account transactions under the Foreign Exchange Management Act.
Clearing Corporation of India Ltd. (CCIL): An organisation providing clearing and settlement services for various financial market instruments in India.
भारतीय �रज़व� ब�क
RESERVE BANK OF INDIA
www.rbi.org.in
RBI/2018-19/222
FMRD.DIRD.19/14.03.046/2018-19 June 26, 2019
(Updated as on August 08, 2022)
(Updated as on February 10, 2022)
To
All participants in Rupee interest rate derivatives markets
Dear Sir/Madam
Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019
Please refer to Paragraph 8 of the Statement on Developmental and Regulatory
Policies, Reserve Bank of India, issued as part of the sixth Bi-monthly Monetary Policy
Statement for 2018-19 dated February 07, 2019 regarding rationalization of interest rate
derivative directions.
2. The draft directions was released for public comments on April 03, 2019. Based on
the feedback received from the market participants, the Rupee Interest Rate Derivatives
(Reserve Bank) Directions, 2019 has been reviewed and has since been finalized. The
directions is enclosed herewith.
Yours faithfully,
(Dimple Bhandia)
Chief General Manager
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel:
(91-22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
िह�ी आसान है, इसका प्रयोग बढ़ाइए
चेतावनी: �रजव� ब�क �ारा ई-मेल, डाक, एसएमएस या फोन कॉल के ज�रये िकसी की भी ���गत जानकारी जैसे ब�क के खाते का �ौरा, पासवड� आिद नही ंमांगी जाती है।
यह धन रखने या देने का प्र�ाव भी नही ंकरता है। ऐसे प्र�ावो ंका िकसी भी तरीके से जवाब मत दीिजए।
Caution: RBI never sends mails. SMSs or makes calls asking for personal information like bank account details, Passwords, etc. It never keeps or offers
funds to anyone. Please do not respond in any manner to such offers.भारतीय �रज़व र् बक�
RESERVE BANK OF INDIA
www.rbi.org.in
FINANCIAL MARKETS REGULATION DEPARTMENT
Notification No.FMRD.DIRD.20/2019 dated June 26, 2019
Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019
(Updated as on August 08, 2022)
(Updated as on February 10, 2022)
The Reserve Bank of India (hereinafter called the Reserve Bank) having considered it
necessary in public interest and to regulate the financial system of the country to its
advantage, in exercise of the powers conferred under section 45W of the Reserve Bank
of India Act, 1934 (hereinafter called the Act) read with section 45U of the Act and of all
the powers enabling it in this behalf, hereby issues the following directions to all entities
including the non-residents, eligible to participate or transact in Rupee Interest Rate
Derivatives in India. A reference is also invited to the Foreign Exchange Management
(Permissible Capital Account Transactions) Regulations, 2000 (Notification No. FEMA 1
/2000-RB dated May 03, 2000) and Foreign Exchange Management (Debt Instruments)
Regulations, 2019 (Notification No. FEMA 396/2019-RB dated October 17, 2019), as
amended from time to time.
1. Short title, scope and commencement of the directions -
(1) These Directions may be called the Rupee Interest Rate Derivatives (Reserve
Bank) Directions, 2019 and shall supersede all other Directions indicated in
Annex-I.
(2) These Directions shall be applicable to Rupee interest rate derivatives
transactions undertaken on recognized stock exchanges and Over-the-Counter
(OTC) markets, including on electronic trading platforms (ETPs).
(3) These Directions shall come into force with immediate effect.
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
िह�ी आसान है, इसका प्रयोग बढ़ाइए
चेतावनी: �रजव� ब�क �ारा ई-मेल, डाक, एसएमएस या फोन कॉल के ज�रये िकसी की भी ���गत जानकारी जैसे ब�क के खाते का �ौरा, पासवड� आिद नही ंमांगी जाती है।
यह धन रखने या देने का प्र�ाव भी नही ंकरता है। ऐसे प्र�ावो ंका िकसी भी तरीके से जवाब मत दीिजए।
Caution: RBI never sends mails. SMSs or makes calls asking for personal information like bank account details, Passwords, etc. It never keeps or offers
funds to anyone. Please do not respond in any manner to such offers.2. Definitions -
(i) Benchmark Interest Rates refer to interest rates administered by a Financial
Benchmark Administrator.
(ii) Electronic Trading Platform (ETP) shall have the meaning assigned in para
2(1) (iii) of the Electronic Trading Platforms (Reserve Bank) Directions, 2018
dated October 05, 2018 or as modified from time to time.
(iii) European Interest Rate Options are interest rate option contracts that can be
exercised only on the expiration date.
(iv) Financial Benchmark Administrator (FBA) means a person who controls the
creation, operation and administration of financial benchmark(s).
(v) Foreign Currency Settled OIS (FCS-OIS) means an OIS contract whose
settlement currency is other than the Indian Rupee (INR).
(vi) Forward Rate Agreement (FRA) is an interest rate derivative contract that
involves exchange of interest payments on a notional principal amount, on a
future date, at agreed rates, for a defined forward period.
(vii) Hedging is the activity of undertaking a derivative transaction to reduce an
identifiable and measurable risk. For the purpose of these directions, the
relevant risk is exposure to Rupee interest rate risk in India. Hedging can be
either at balance sheet level or at portfolio level or at individual asset or liability
level.
(viii) Interest Rate Derivative (IRD) is a financial derivative contract whose value is
derived from one or more interest rates, prices of interest rate instruments, or
interest rate indices.
(ix) Interest Rate Futures (IRF) are standardized interest rate derivative contracts
traded on a recognized stock exchange to buy or sell a notional security or any
other interest-bearing instrument or an index of such instruments or interest
rates at a specified future date, at a price determined at the time of the
contract. Interest Rate Futures include Money Market Futures.
(x) Interest Rate Option (IRO) is an option contract whose value is based on
Rupee interest rates or interest rate instruments.
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
2(xi) An Interest Rate Cap is a series of interest rate call options (called caplets) in
which the buyer of the option receives a payment at the end of each period
when the underlying interest rate is above a rate agreed in advance (strike
rate).
(xii) An Interest Rate Floor is a series of interest rate put options in which the
buyer of the option receives a payment at the end of each period when the
underlying interest rate is below the strike rate.
(xiii) An Interest Rate Collar is a derivative contract where a market participant
simultaneously purchases an interest rate cap and sells an interest rate floor
on the same interest rate for the same maturity and notional principal amount.
(xiv) A Reverse Interest Rate Collar is a derivative contract which involves
simultaneous purchase of an interest rate floor and sale of an interest rate cap
on the same interest rate for the same maturity and notional principal amount.
(xv) An Interest Rate Swap (IRS) is a derivative contract that involves exchange of
a stream of agreed interest payments on a `notional principal’ amount during a
specified period.
(xvi) An Interest Rate Swaption is an option on interest rate swaps. A swaption
gives the buyer the right, but not the obligation, to enter into an interest rate
swap.
(xvii) A Leveraged Derivative is a financial derivative contract whose value, in
absolute terms, changes more than proportionately to the change in the
underlying risk (i.e., ∆ (delta) lies beyond the range of ±1).
(xviii) Market-makers provide bid and offer prices to users and other market-makers.
Market-makers need not have an underlying risk.
(xix) Money Market Futures are interest rate futures based on any Rupee
denominated money market interest rate or money market instrument.
(xx) Non-resident is a person resident outside India as defined in section 2 (w) of
Foreign Exchange Management Act, 1999 (42 of 1999).
(xxi) Non-retail users shall include (a) entities regulated by the Reserve Bank; (b)
insurance companies; (c) mutual funds, pensions funds and other collective
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
3investment vehicles; (d) All India Financial Institutions (AIFIs), viz., Exim Bank,
NABARD, NHB and Small Industries Development Bank of India (SIDBI); (e)
companies/entities with net-worth of ₹500 crore or above; and (f) non-residents
other than individuals.
(xxii) Option is a financial derivative contract that gives the buyer the right, but not
the obligation, to either buy (call option) or sell (put option) an asset at a pre-
determined price (known as the strike price) by a specified date (known as
the expiration date).
(xxiii) Overnight Indexed Swap (OIS) is an interest rate swap based on the
Overnight Mumbai Interbank Outright Rate (MIBOR) benchmark published by
Financial Benchmarks India Pvt. Ltd (FBIL).
(xxiv) Person resident in India is as defined in Section (v) of the Foreign Exchange
Management Act, 1999.
(xxv) Recognized stock exchanges shall have the meaning assigned under
Section 2 (f) of the Securities Contract Regulation Act, 1956.
(xxvi) Regulated entity means any person, other than an individual or HUF, whose
activities are regulated by any one of the financial regulators in India viz.,
Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI),
Insurance Regulatory and Development Authority of India (IRDAI), Pension
Fund Regulatory and Development Authority (PFRDA), National Housing Bank
(NHB) and National Bank for Agriculture and Rural Development (NABARD).
(xxvii) Related entities are entities as defined under Para-9 of International
Accounting Standards - 24 (IAS-24).
(xxviii) Retail users refer to all eligible participants in IRD markets, other than non-
retail users.
(xxix) A structured derivative is a financial derivative contract which is a
combination of cash and/or generic derivative instrument.
(xxx) Users refer to all entities that undertake derivative transactions but not as a
market-maker.
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
4(xxxi) The words and expressions used but not defined in these Directions shall have
the meaning assigned to them in the Reserve Bank of India Act, 1934.
3. Eligible Participants -
(1) Any person resident in India and any non-resident, to the extent specified in
these Directions, is eligible to participate in IRDs. All regulated entities shall
participate in IRDs with the permission of and subject to the terms and conditions,
if any, fixed by their respective regulators.
(2) Indian or non-resident parent company or any group company or centralised
treasury can transact in IRDs on behalf of their wholly owned subsidiaries or group
companies provided they meet the criteria for non-retail users.
4. Trading Venues -
IRD contracts can be transacted either (i) on Recognized Stock Exchanges
(referred hereafter as exchanges), or, (ii) Over-the-Counter (OTC). OTC
transactions shall refer to all transactions done outside of recognized stock
exchanges and shall include transactions on Electronic Trading Platforms (ETPs).
The directions governing activities in IRDs in each of these trading venues, viz.,
exchanges or OTC markets, are laid down separately.
5. Interest Rate Derivatives on Recognized Stock Exchanges -
IRD transactions carried out on exchanges shall be subject to the following
directions:
(a) Exchanges are permitted to offer any standardized Interest Rate Derivatives
product.
(b) The product design, eligible participants and other details of the IRD product
may be finalized by the exchanges.
(c) Exchanges shall obtain prior approval of the Reserve Bank before introducing
any new IRD product or before carrying out modifications to an existing
product.
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
56. Interest Rate Derivatives in the OTC Market -
IRD transactions in the OTC market shall be subject to the following directions:
(a) Scheduled Banks, Standalone Primary Dealers (SPDs) and All-India Financial
Institutions (AIFIs) are eligible to act as market-makers for IRD products in
OTC markets.
(b) Market-makers may offer the following products to retail users:
i. Forward Rate Agreement (FRA),
ii. Interest Rate Swap (IRS), and
iii. European Interest Rate Options (IRO) including caps, floors, collars and
reverse collars.
(c) In addition to the products listed in (b) above, market-makers may offer
swaptions and structured derivative products, excluding leveraged derivatives,
only to non-retail users.
(d) Banks having Authorised Dealer Category-I (AD Cat-I) license under FEMA,
1999, and SPDs authorized under section 10(1) of FEMA, 1999 may offer
FCS-OIS contracts to non-residents, other than individuals. Such entities may
also undertake transactions in FCS-OIS contracts among themselves. Banks
can undertake these transactions through their branches in India, through their
International Financial Services Centre (IFSC) Banking Units (IBUs) or through
their foreign branches (in case of foreign banks operating in India, through any
branch of the parent bank).
(e) For the purpose of offering IRD contracts to a user, market-makers shall
classify a user either as a ‘retail’ user or as a ‘non-retail’ user:
i. Any user who is otherwise eligible to be classified as a ‘non-retail’ user
shall have the choice to be classified as a ‘retail’ user by market-
makers.
(f) Market-makers shall ensure that transactions undertaken by retail users
(including ‘non-retail’ users who choose to be classified as ‘retail’ users) are for
the purpose of hedging an underlying interest rate risk. Resident ‘non-retail’
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
6users can undertake transactions in permitted products for both hedging and
otherwise.
(g) A non-resident can undertake transactions in the Rupee interest rate
derivatives markets for the following purposes:
i. To hedge an exposure to Rupee interest rate risk as stipulated in
paragraph 7 below; and,
ii. For purposes other than hedging, to the extent stipulated in paragraph 8
below.
(h) Any floating interest rate or price or index used in IRDs in the OTC market
shall be a benchmark published by an FBA or approved by The Fixed Income
Money Market and Derivatives Association of India (FIMMDA) for this purpose.
FIMMDA shall ensure that the floating rate approved by them is determined
transparently, objectively and in arm’s length transactions.
(i) IRD transactions shall be settled bilaterally or through any clearing
arrangement approved by the Reserve Bank for the purpose. FCS-OIS
transactions may also be settled as decided bilaterally by the counterparties.
(j) Settlement basis and other market conventions for IRD transactions may be
specified by FIMMDA, where possible, in consultation with market participants.
(k) The market hours for IRD transactions in OTC market shall be from 9:00 AM to
5:00 PM on each business day or as specified by the Reserve Bank from time
to time. A market-maker may undertake transactions in FCS-OIS beyond
onshore market hours.
7. Transactions by non-residents for the purpose of hedging interest rate risk -
(a) A non-resident may undertake Rupee interest rate derivatives transactions
in India to hedge its interest rate risk using any product transacted on
recognized stock exchanges or listed in paragraph 6(b), 6(c) and 6 (d)
above.
(b) Market-makers shall ensure that transactions by a non-resident are being
carried out for the purpose of hedging. For this purpose, market-makers
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
7may call for any relevant information from the non-resident, who, in turn, is
obliged to provide such information.
8. Transactions by non-residents for purposes other than hedging interest rate
risk -
(a) Non-residents, other than individuals, may undertake Overnight Indexed
Swaps (OIS) transactions, excluding transactions in FCS-OIS, for purposes
other than hedging interest rate risk in terms of the following arrangements:
i. These transactions may be undertaken directly with a market-maker
in India, or by way of a ‘back-to-back’ arrangement through a foreign
branch/parent/group entity (foreign counterpart) of the market-
maker.
Explanation – For the purpose of these directions, a ‘back-to-back’
arrangement means that a non-resident undertakes the transaction with
a foreign counterpart of a market-maker and the foreign counterpart, in
turn, immediately enters into an off-setting transaction with that market-
maker in India.
ii. A market-maker shall enter into a ‘back-to-back’ arrangement
referred to in (i) above provided that:
I. All rupee interest rate derivatives transactions, globally, of
related entities of the market-maker are accounted for in the
books of the market-maker. In other words, no related entity
of the market-maker shall undertake transactions in Rupee
interest rate derivatives other than under the ‘back-to-back’
arrangement.
II. Rupee interest rate derivatives transactions of FPIs related to
the market-maker covered under para 7 above shall be
exempted from the requirement in para 8(a)(ii)(I) above.
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
8(b) Non-residents may also undertake FCS-OIS transactions with banks having
AD Cat-I license and SPDs authorized under section 10(1) of FEMA, 1999
for purposes other than hedging interest rate risk. Transactions by non-
residents in FCS-OIS may be undertaken directly with these entities.
Transactions with banks having AD Cat-I license may also be undertaken
by way of a ‘back-to-back’ arrangement through their foreign branches or
through their IBUs.
Explanation – For the purpose of these directions, a ‘back-to-back’
arrangement means that a non-resident undertakes the transaction with a
foreign branch of a market-maker and the foreign branch, in turn,
immediately enters into an off-setting transaction with that market-maker in
India.
(c) OIS transactions, including transactions in FCS-OIS, by non-residents with
market-makers for purposes other than hedging interest rate risk shall be
subject to an overall limit, as specified below:
I. The Price Value of a Basis Point (PVBP) of all outstanding
OIS positions, including FCS-OIS positions shall not exceed
the amount of INR 350 crore (PVBP cap).
Explanation – PVBP cap shall be calculated by making a gross
addition, ignoring mathematical signs, of the PVBP of each non-
resident.
II. Non-residents shall not undertake any further OIS / FCS-OIS
transactions for purposes other than hedging after the PVBP
cap is reached.
III. Clearing Corporation of India Ltd. (CCIL) shall publish the
methodology for calculation of the PVBP and monitor as well
as publish utilization of the PVBP limit on a daily basis.
(d) Foreign Portfolio Investors (FPIs), collectively, may also transact in interest
rate futures (IRF) up to a limit of net long position of INR 5,000 crore in
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
9terms of RBI circular No. FMRD.DIRD.6/14.03.001/2017-18 dated March
01, 2018.
9. A non-resident shall ensure that its interest rate derivative transactions conform to
the provisions of Section 45(V) of the RBI Act, 1934, as well as applicable
provisions of Foreign Exchange Management Act, 1999 and the rules, regulations
and directions issued thereunder.
10. Remittance/Payments by non-residents -
All payments related to interest rate derivative transactions of a non-resident,
excluding FCS-OIS transactions, may be routed through an INR account of the
non-resident or, where the non-resident doesn’t have an INR account in India,
through a vostro account maintained with an Authorised Dealer bank in India. All
payments related to FCS-OIS transactions may be routed through normal banking
channels. The market-maker shall maintain complete details of such transactions.
11. KYC for the non-resident -
Market-maker shall ensure that non-resident clients are from an FATF compliant
country. Market-makers shall also ensure that non-resident clients comply with the
KYC requirements as prescribed under Master Direction – Know your Customer
Direction, 2016 (DBR.AML.BC.No.81/14.01.001/2015-16) dated February 25,
2016 as amended from time to time.
12. Conditions applicable to IRDs on both exchanges and in the OTC market -
The following conditions shall apply to all IRDs, whether traded on an exchange or
in the OTC market:
(a) Market-makers of IRDs in OTC markets shall comply with the ‘suitability and
appropriateness’ requirements contained in the Master Direction – Reserve
Bank of India (Market-makers in OTC Derivatives) Directions, 2021 issued by
the Reserve Bank, as amended from time to time. Exchanges shall ensure that
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
10clients participating on exchanges are adequately made aware of the risks
associated with the derivative instrument.
(b) Accounting, valuation and capital requirement for IRDs shall be as per the
applicable accounting standards and valuation methods prescribed by ICAI or
other standard setting organisation or as specified by the respective regulators
of participants.
13. Regulatory reporting -
(1) Market-makers in OTC transactions shall report all transactions, including
client trades, within 30 minutes of the transactions, to the Trade Repository of
Clearing Corporation of India Ltd. (CCIL), clearly indicating whether the trade is for
hedging or other purposes. All FCS-OIS transactions undertaken by market-
makers in India through their branches in India or through their foreign branches
(in case of foreign banks operating in India, through any branch of the parent
bank), shall be reported to CCIL’s Trade Repository before 12:00 noon of the
following business day.
(2) Market-makers shall report trade details, including particulars of the non–
resident client for OIS transactions under the ‘back-to-back’ arrangement, to the
trade repository of CCIL.
(3) All resident users whose gross notional outstanding amount across different
benchmarks/curves for all outstanding IRD contracts taken together reaches
₹1,000 crore at any point of time during a quarter shall report details of their risk
positions at the end of that quarter in the prescribed format as furnished in Annex
II. The report shall be routed through any bank or SPD with whom they undertake
derivatives transactions.
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
11(4) Cross-border remittances arising out of transactions in Rupee interest rate
derivatives shall be reported by banks to the Reserve Bank at monthly interval in
the prescribed format as furnished in Annex III.
14. The list of previous circulars issued by the Reserve Bank that are repealed and
withdrawn with immediate effect are given at Annex I hereunder. However, the
directions contained in those circulars shall continue to apply to contracts
undertaken in accordance with the said directions till the expiry of those contracts.
िव�ीय बाज़ार िविनयमन िवभाग, क�द्रीय काया�लय, 9 वी ंमंिजल, क�द्रीय काया�लय भवन, शहीद भगत िसंह माग�, फोट�, मुंबई – 400001.
फोन: (91-22) 2260 1000 फ़ै�: (91-22) 2270 2290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 9th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai - 400001 Tel: (91-
22) 2260 1000 Fax: (91-22) 2270 2290 e-mail- cgmfmrd@rbi.org.in
12Annex I
List of circulars repealed and withdrawn
1. Circular No. MPD.BC.187/07.01.279/1999-2000 dated July 7, 1999
2. Circular No. IDMD.PDRS.4802(A)/03.64.00/2002-03 dated June 11, 2003
3. Circular No. DBOD.BP.BC.No.56/21.04.157/2008-09 dated October 13, 2008
4. Circular No. FMD.MSRG No.39/02.04.003/2009-10 dated August 28, 2009
5. Circular No. IDMD.PDRD.No.1056/03.64.00/2009-10 dated September 1, 2009
6. Circular No. IDMD.PCD. 28/14.03.01/2010-11 dated March 7, 2011
7. Circular No. IDMD.PCD.17/14.03.01/2011-12 dated December 30, 2011
8. Circular No. IDMD.PCD.16/14.03.01/2011-12 dated December 30, 2011
9. Circular No. IDMD.PCD.2191/14.03.01/2012-13 dated January 28, 2013
10. Circular No. IDMD.PCD.08/14.03.01/2013-14 dated December 5, 2013
11. Circular No. IDMD.PCD.09/14.03.01/2013-14 dated December 19, 2013
12. Circular No. FMRD.DIRD.10/14.03.01/2014-15 dated June 12, 2015
13. Circular No. FMRD.DIRD.10/14.03.01/2016-17 dated October 28, 2016
14. Circular No. FMRD.DIRD.12/14.01.011/2016-17 dated December 29, 2016
15. Circular No. FMRD.DIRD.9/14.01.020/2017-18 dated June 14, 2018
16. Circular No. FMRD.DIRD.13/14.03.041/2018-19 dated March 27, 2019Annex II
Interest Rate Risk Positions for the quarter ended____ As on ____ (Date)
Market Segment Price Value of a Basis Point (PVBP)
Beginning During the quarter End of
of quarter High Low Average quarter
(i) Interest Rate
Derivatives
(ii) Investment in
Rupee interest rate
sensitive securities
TotalAnnex III
Cross-border remittances arising out of Rupee interest rate derivatives
transactions undertaken by non-residents during MM/YY (month of year):
Inward remittance Outward remittance
(In INR) (In INR)
For hedging
For purposes other than hedging