Corporate Bond Index Derivatives and TRS: RBI Draft Norms
Why in the news
RBI put out draft rules to deepen the corporate bond market, following a Budget announcement by Nirmala Sitharaman.
Aims
- Sharper credit risk management, liquidity and price discovery.
- Easier bond issuance across ratings and a broader credit risk transfer toolkit.
About Total Return Swap
- One side receives a bond’s total return (coupon plus price movement) without owning it; the provider, usually a bank, holds the bond.
- It gives synthetic credit exposure.
Draft provisions
| Participant | TRS use |
|---|---|
| Resident non-individuals | Any purpose |
| Individuals | Barred |
| Non-residents | Hedging only |
- Indices may hold money market debt, rated corporate bonds and unrated infrastructure SPV paper.
- Floating leg must follow benchmarks from financial benchmark administrators.
Exam angle
- Settlement body: FIMMDA, after market consultation.