RBI/2012-13/366
IDMD.PCD.No.10 /14.03.04/2012-13

January 7, 2013

All Market Participants

Dear Sir/Madam,

A reference is invited to the guidelines on CDS issued vide circular IDMD.PCD.No. 5053 /14.03.04/2010-11 dated May 23, 2011.

2. Based on the feedback received from the market and suggestions of the Technical Advisory Committee on Money, Foreign Exchange and Government Securities Markets, the existing guidelines have been reviewed and it has been decided as under:

i.  In addition to listed corporate bonds, CDS shall also be permitted on unlisted but rated corporate bonds even for issues other than infrastructure companies.

ii.  Users shall be allowed to unwind their CDS bought position with original protection seller at mutually agreeable or FIMMDA price. If no agreement is reached, then unwinding has to be done with the original protection seller at FIMMDA price.

iii.  CDS shall be permitted on securities with original maturity up to one year like Commercial Papers, Certificates of Deposit and Non Convertible Debentures with original maturity less than one year as reference / deliverable obligations.

3. Revised guidelines on CDS for corporate bonds incorporating above mentioned changes and consolidating all earlier guidelines issued in this regard are enclosed as Annex.

4. The revised guidelines will be effective from the date of the circular.

Yours faithfully,

(K.K. Vohra)

Chief General Manager

Credit Default Swaps on corporate bonds authorised with defined user and market-maker roles, settlement and reporting rules. CDS referencing listed or rated unlisted corporate bonds and specified short-term instruments are permitted with distinct roles for users (buy protection only, must hold underlying, no naked positions) and market-makers (may buy/sell protection). Trades require an RBI-regulated entity on one side; documentation, standardisation, and FIMMDA master agreements apply; physical settlement is mandatory for user-involving trades and unwinding by users must be with original protection seller at mutually agreed or FIMMDA price.