The Clearing Corporation of India (CCIL) may become the designated repository of interest rate and forex derivative transactions. This would help segregate the repository activity from clearing and settlement activity and ensure better governance and compliance with standards, according to the report of the working group on reporting of over-the-counter (OTC) Interest Rate and Forex Derivatives, set up by the Reserve Bank of India.
The committee feels that the repository services may, however, in due course, be housed in a separate entity under its ownership, subject to economic viability. The panel, whose recommendations were released by the RBI on Wednesday, has suggested that it may be made mandatory to report forward transactions and swaps between banks and their clients beyond some threshold ? say, $100,000 ? to CCIL with adequate safeguards with regard to confidentiality.
The working group was be set up to work out the modalities for an efficient single-point reporting mechanism for all OTC interest rate and forex derivative transactions.
Moreover, it suggests that all inter-bank forex forward transactions may be reported, under the RBI mandate to CCIL which already has a platform for this purpose. Besides, the panel says, all interbank forex options contracts, including cross currency, may be reported to CCIL. Option contracts between banks and their clients beyond a threshold may also be reported to CCIL with necessary safeguards.
The present system of reporting interbank Interest Rate Swaps (IRS) and Forward Rate Agreement (FRA) transactions to CCIL, the report notes, may be formalised as reporting to a Trade Repository (TR). Reporting of client trades in FRA and IRS to CCIL may also be mandated with necessary safeguards.
The report has covered the Over-the-counter OTC derivative products currently permitted in the Indian market. As the market develops, more products are likely to be introduced and the reporting framework proposed can be extended with appropriate modifications, wherever necessary, to these products as well, the panel notes.
The report notes that in the aftermath of the global financial crisis, improving transparency of the OTC derivatives market has been a principal theme of discourse concerning the steps to be taken to prevent the recurrence of such a crisis in future. Two major steps in this direction are (a) clearing and settlement of OTC derivative transactions through Central Counterparties (CCP) and (b) incentivising or mandating reporting of OTC derivatives trades to designated trade repositories (TRs).
On the second issue, while the details of the framework for reporting are being discussed and debated in various jurisdictions, the need for comprehensive reporting mechanism with unrestricted access to the regulators responsible for financial stability, post-trade processing services to market participants, and dissemination of aggregate volume and price data to the market and public at large is not disputed.