RBI Draft Norms on Novation of OTC Derivatives
Why in the news
The RBI drafted rules to bring transparency, fairness and legal certainty to swapping counterparties in OTC derivative contracts.
Key facts
- Tripartite agreement among the three parties.
- Done at prevailing market rates, exchanging mark-to-market value.
- FIMMDA and FEDAI to prepare standard documentation, or a standard master agreement may be used.
About novation
- A legal process that swaps one counterparty for another while all other contract terms stay identical.
Novation roles
| Party | Role |
|---|---|
| Transferor | Original party that exits |
| Transferee | New party that enters |
| Remaining party | Stays and continues in the new contract |
Exam angle
- Reporting venue: CCIL Trade Repository.
- Associations asked: FIMMDA and FEDAI.