The Reserve Bank of India has released the Draft Reserve Bank of India (Bond Forwards) Directions, 2023. Comments on the draft directions are invited from banks, market participants, investors and other interested parties by January 25, 2024. The following Directions for Users are issued:
- Users, other than FPIs, may undertake long positions in bond forwards without any limit.
- Users, except for resident companies, are permitted to undertake covered short positions. Debt instruments underlying such positions in bond forwards may be used in a repo transaction, if the user is otherwise eligible to undertake repo transactions, subject to the condition that the maturity of the repo should not exceed the maturity of the bond forward.
- Resident companies shall not undertake any short position in bond forwards.
- Users shall not undertake any uncovered short position in bond forwards. Market-makers shall ensure that the users undertake only covered short positions in bond forwards. To ensure this, market-makers may call for any relevant information/documents from the eligible users, who, in turn, shall be obliged to provide such information.
- Users with short positions in bond forwards shall inform the market-makers in case they cease to hold the underlying debt instrument. Users shall exit their short position in bond forwards at the earliest but not later than one week from the date they cease to hold the underlying debt instrument.
- FPI participation in bond forwards shall be subject to the provisions of A.P. (DIR Series) Circular No. _ dated December xx, 2023 on Transactions in Bond Forwards by Foreign Portfolio Investors – Operational Instructions (to be issued).
