RBI unveils norms for credit default swaps for corp bonds!

Shrugging off the worries raised by credit derivatives in the global financial crisis, the Reserve Bank of India (RBI) has announced the draft report on credit default swaps (CDS) stipulating that CDS should be allowed only for corporate bonds as “reference obligation” with strict entry norms for players — both market makers and users. During the 2008-09 financial crisis, the global CDS market was a big concern to regulators due to the lack of transparency in the trillion dollar market and the related systemic risk.

“While the reference entities are required to be rated, no minimum rating is stipulated. The participants in CDS market may be categorised as — Market-makers who are permitted to both buy and sell protection and users who are not permitted to sell protection but are permitted only to hedge the underlying risk by buying protection,” the report prepared by an Internal Group of the RBI said.

Source :Indian Express