BOND
FORWARDS - ECONOMY
News:
RBI releases draft on G-Sec
forwards
What's
in the news?
●
The Reserve Bank of India has released
draft directions on introduction of bond forwards in government securities, a
move that will enable market participants, particularly long-term investors, to
manage cash flows and interest rate risk.
Bond
forwards:
●
A bond forward refers to a derivative contract in which one
counterparty agrees to purchase a specific debt instrument from another
counterparty on a particular future date
and at a price decided at the time the contract is struck.
Rules:
●
The norms will apply to transactions in
bond forwards conducted in the over-the-counter
market.
Market
Makers:
●
Banks, except for small finance banks,
payment banks, local area banks and regional rural banks will act as
market-makers in bond forwards along with standalone primary dealers.
●
At
least one of the parties in a bond forwards transaction must
be a market-maker or a central counterparty authorised by the Reserve Bank of India (RBI).
Eligible
Buyers:
●
The financial institutions that are
eligible to undertake bond forwards as users are small finance banks, payment banks, regional rural banks and urban
cooperative banks.
●
Non-banking
finance companies and All India Financial Institutions
are also eligible users.
●
Insurance
companies, pension funds, mutual funds, alternative investment funds, foreign
portfolio investors and resident investors with net worth of
₹500 crore and above are also eligible users.