OTC Derivatives Market in India: Recent Regulatory Initiatives and Open Issues for Market Stability and Development

The OTC derivatives markets all over the world have shown tremendous growth inrecent years. In the wake of the present financial crisis, which is believed to have beenexacerbated by OTC derivatives, increasing attention is being paid to analysing theregulatory environment of these markets. In this context, we analyse the regulatoryframework of the OTC derivatives market in India. The paper, inter alia, seeks toprove the point that the Indian OTC derivatives markets, unlike many otherjurisdictions, are well regulated. Only contracts where one party to the contract is anRBI regulated entity are considered legally valid in India. A good reporting systemand a post-trade clearing and settlement system, through a centralised counter party,has ensured good surveillance of the systemic risks in the Indian OTC market.From amongst the various OTC derivatives markets permitted in India, interest rateswaps and foreign currency forwards are the two prominent markets. However, byinternational standards, the total size of the Indian OTC derivatives markets stillremains small because credit default swaps were conspicuously absent in India untilnow. It appears that Indian OTC derivatives markets will grow fast once again afterthe present financial crisis is over. This research paper explores those open issues thatare important to ensure market stability and development. On the issue of the muchdiscussed competition between exchange-traded and OTC-traded derivatives, webelieve that the two markets serve different purposes and would contribute more torisk management and market efficiency, if viewed as complementary. Regarding theintroduction of new derivative products for credit risk transfer, the recentannouncement by the RBI that it would introduce credit default swaps is a welcomesign. We believe that routing of credit default swaps through a reporting platform andmanaging its post-trade activities through a centralised counterparty would providebetter surveillance of the market. Strengthening the position of the ClearingCorporation of India Ltd. (CCIL) as the only centralised counterparty for Indian OTCderivatives market and better supervision of the off-balance sheet business offinancial institutions are two measures that have been proposed to ensure the stabilityof the market.Derivatives and Over the Counter Market, Financial Institutions and Services and Government Policy and Financial Regulation

International competitiveness of financial institutions: a case study of Japanese banks in Europe

Available from Bibliothek des Instituts fuer Weltwirtschaft, ZBW, Duesternbrook Weg 120, D-24105 Kiel A 210269 / FIZ - Fachinformationszzentrum Karlsruhe / TIB - Technische InformationsbibliothekSIGLEDEGerman

OTC Derivatives Market in India: Recent Regulatory Initiatives and Open Issues for Market Stability and Development

The paper seeks to prove the point that the Indian OTC derivatives markets, unlike many other jurisdictions, are well regulated. Only contracts where one party to the contract is an RBI regulated entity are considered legally valid in India. A good reporting system and a post-trade clearing and settlement system, through a centralised counter party, has ensured good surveillance of the systemic risks in the Indian OTC market. [ICRIER WP No. 248].Indian, OTC market derivatives, India, post-trade, regulated, RBI, stability, development, Finanacial institutions, regulations, derivatives, over the counter, government policy, research and development, R&D, currency, balance sheet

OTC Derivatives Market in India : Recent Regulatory Initiatives and Open Issues for Market Stability and Development

The OTC derivatives markets all over the world have shown tremendous growth in recent years. In the wake of the present financial crisis, which is believed to have been exacerbated by OTC derivatives, increasing attention is being paid to analysing the regulatory environment of these markets. In this context, we analyse the regulatory framework of the OTC derivatives market in India. The paper, inter alia, seeks to prove the point that the Indian OTC derivatives markets, unlike many other jurisdictions, are well regulated. Only contracts where one party to the contract is an RBI regulated entity are considered legally valid in India. A good reporting system and a post-trade clearing and settlement system, through a centralised counter party, has ensured good surveillance of the systemic risks in the Indian OTC market. From amongst the various OTC derivatives markets permitted in India, interest rate swaps and foreign currency forwards are the two prominent markets. However, by international standards, the total size of the Indian OTC derivatives markets still remains small because credit default swaps were conspicuously absent in India until now. It appears that Indian OTC derivatives markets will grow fast once again after the present financial crisis is over. This research paper explores those open issues that are important to ensure market stability and development. On the issue of the much discussed competition between exchange-traded and OTC-traded derivatives, we believe that the two markets serve different purposes and would contribute more to risk management and market efficiency, if viewed as complementary. Regarding the introduction of new derivative products for credit risk transfer, the recent announcement by the RBI that it would introduce credit default swaps is a welcome sign. We believe that routing of credit default swaps through a reporting platform and managing its post-trade activities through a centralised counterparty would provide better surveillance of the market. Strengthening the position of the Clearing Corporation of India Ltd. (CCIL) as the only centralised counterparty for Indian OTC derivatives market and better supervision of the off-balance sheet business of financial institutions are two measures that have been proposed to ensure the stability of the market.finance, Foreign Currency, interest rates