Reserve Bank of India (Credit Derivatives) Directions, 2022

To,
All Eligible Market Participants
Madam/Sir,
Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022
Please refer to Paragraph 4 of the Statement on Developmental and Regulatory Policies
announced as a part of the Bi-monthly Monetary Policy Statement for 2021-22 dated
February 10, 2022, regarding review of the Credit Default Swaps (CDS) Guidelines.

  1. The draft Reserve Bank of India (Credit Derivatives) Directions, 2021 were released
    for public comments on February 16, 2021. Based on the feedback received from the
    market participants, the draft Directions were reviewed and have since been finalised.
    The Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022 are
    enclosed herewith.
    Yours faithfully,
    (Dimple Bhandia)
    Chief General Manager

FINANCIAL MARKETS REGULATION DEPARTMENT
Notification No. FMRD.DIRD.11/14.03.004/2021-22 dated February 10, 2022
Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022

In exercise of the powers conferred under section 45W of the Reserve Bank of India Act,
1934 (02 of 1934) (hereinafter called the Act) read with section 45U of the Act and in
supersession of Circular No. IDMD.PCD.No.10/14.03.04/2012-13 dated January 07,
2013, the Reserve Bank of India (hereinafter called the Reserve Bank) hereby issues the
following Directions.
A reference is also invited to the Foreign Exchange Management Act, 1999 (42 of 1999),
Foreign Exchange Management (Debt Instruments) Regulations, 2019 (Notification No.
FEMA. 396/2019-RB dated October 17, 2019) and A.P. (DIR Series) Circular No. 23
dated February 10, 2022 on Transactions in Credit Default Swap (CDS) by Foreign
Portfolio Investors – Operational Instructions.

  1. Short title, scope and commencement
    (i) These Directions shall be called the Master Direction – Reserve Bank of India (Credit
    Derivatives) Directions, 2022.
    (ii) These Directions shall apply to credit derivatives transactions undertaken in Over-
    the-Counter (OTC) markets and on recognised stock exchanges in India.
    (iii) These Directions shall come into force on May 09, 2022.
  2. Definitions
    (i) In these Directions, unless the context otherwise requires:
    (a) ‘Auction settlement’ of CDS means a settlement process in which the price of
    the reference/deliverable obligation at which the settlement will happen is
    determined through an auction mechanism.
    (b) ‘Cash settlement’ of CDS means a settlement process in which the protection
    seller pays to the protection buyer, the notional amount of the CDS contract less
    the expected recovery value of the reference obligation.
    (c) ‘Central counterparty’ means an entity that interposes itself between
    counterparties to contracts traded in one or more financial markets, becoming
    the buyer to every seller and the seller to every buyer and thereby ensuring the
    performance of open contracts.