Second Quarter Review of Monetary Policy 2010-11
-Announced on the 2nd November 2010
Developmental and Regulatory Policies
III. Financial Markets
Financial Market Products
Interest Rate Futures
67. The Monetary Policy Statement of April 2010 had indicated that exchange traded interest rate futures (IRFs) on 5-year and 2-year notional coupon bearing Government of India securities and 91-day Treasury Bills would be introduced. It was also indicated that the RBI-SEBI Standing Technical Committee would finalise the product design and operational modalities. The issue relating to product design was deliberated by the RBI-SEBI Standing Technical Committee. The Reserve Bank will introduce such IRFs after taking into account the experiences of cash-settled IRF regimes in other countries.
Regulation of Non-Convertible Debentures of Maturity Less than One Year
68. It was proposed in the Monetary Policy Statement of April 2010 to issue the final guidelines on the issuance of non-convertible debentures (NCDs) of maturity less than one year by end-June 2010. Accordingly, keeping in view the feedback received, the guidelines on NCDs were issued in June 2010, which came into force with effect from August 2, 2010. The guidelines, among others, covered eligibility criteria to issue NCDs, rating requirement, maturity, denomination, limits and amount of issue of NCDs and responsibilities of corporates, debenture trustees and credit rating agencies.
Introduction of Credit Default Swaps
69. It was indicated in the Monetary Policy Statement of April 2010 that the draft report of the internal Working Group on introduction of credit default swap (CDS) for corporate bonds would be placed on the Reserve Bank’s website by end-July 2010. Accordingly, the draft report was placed on the Reserve Bank’s website on August 4, 2010 for public comments till October 4, 2010. The comments/suggestions received are being examined by holding wider consultations with all the stakeholders, including corporates.
Repo in Corporate Bonds
70. For development of the corporate bond market, the Reserve Bank had issued guidelines in January 2010, permitting repo in corporate bonds, subject to certain terms and conditions. To further facilitate repo transactions in corporate bonds, a review of the guidelines governing repo in corporate bonds has been undertaken by the Reserve Bank in consultation with the market participants. Accordingly, it has been decided:
to permit settlement of repo in corporate bonds on a T+0 basis in addition to the existing T+1 and T+2 basis and revise the repo haircut requirements suitably.
71. Detailed guidelines, which will be effective December 1, 2010, are being issued separately.
Guidelines on Over-the-Counter Forex Derivatives
72. The draft guidelines on over-the-counter (OTC) foreign exchange derivatives were placed on the Reserve Bank’s website in November 2009 for public comments. The feedback received from stakeholders was discussed in the meeting of the Technical Advisory Committee on the Money, Foreign Exchange and Government Securities Markets. On the basis of the discussions, the revised draft guidelines on the subject were again placed on the Reserve Bank’s website in July 2010 for final comments by August 13, 2010. Comments received from stakeholders were examined and deliberated in the meeting of the Technical Advisory Committee on the Money, Foreign Exchange and Government Securities Markets. Final guidelines in the light of the feedback received will be issued by end-November 2010.
Introduction of Exchange Traded Currency Option Contracts
73. It was indicated in the Monetary Policy Statement of April 2010 that the Reserve Bank would permit the recognised stock exchanges to introduce plain vanilla currency options on spot US dollar/rupee exchange rate for residents. In July 2010, the Reserve Bank permitted trading of currency options on spot USD-INR rate in the currency derivatives segment of the recognised stock exchanges. The currency options market will function subject to the guidelines issued by the Reserve Bank and the Securities and Exchange Board of India (SEBI) from time to time.
Working Group to Review the Operating Procedure of Monetary Policy
74. As announced in the First Quarter Review of Monetary Policy of July 2010, the Reserve Bank, on October 4, 2010, constituted a Working Group to review the current operating procedure of monetary policy, including the liquidity adjustment facility (Chairman: Shri Deepak Mohanty), with representations from the concerned departments of the Reserve Bank, Indian Banks’ Association (IBA) and Fixed Income Money Market and Derivatives Association of India (FIMMDA). The Group also includes external experts. The Group will submit its report in three months from the date of its first meeting.
Financial Market Infrastructure
Reporting Platform for Certificates of Deposit and Commercial Papers
75. The reporting platform for secondary market transactions in Certificates of Deposit (CDs) and Commercial Papers (CPs) developed by the FIMMDA has been operationalised with effect from July 1, 2010. As mandated, entities regulated by the Reserve Bank, the SEBI and the Insurance Regulatory and Development Authority (IRDA) are now reporting the OTC trades in CDs and CPs on the FIMMDA platform. FIMMDA is also making available online information on trades in CDs and CPs, including prices, transaction amount and yields.
Second Quarter Review of Monetary Policy 2010-11 ... click here
Highlights of 2nd Quarter Review of Monetary Policy 2010-2011... click here
RBI CREDIT AND MONETARY POLICIES (1999-2011)... click here