RBI on Thursday operationalised the new guidelines on credit default swap (CDS), directing market participants to report such trades within 30 minutes to the Clearing Corporation's online repository.
“It is advised that all market makers shall report their CDS trades in corporate bonds within 30 minutes of the trade to the Clearing Corporation of India Ltd (CCIL) trade repository CCIL Online Reporting Engine (CORE) beginning December 1, 2011,” the Reserve Bank said in a circular.
Credit protection
CDS provides credit protection to corporate bond buyers, as the sellers of the swaps guarantee the credit-worthiness of the product. Thus, the risk of default is transferred from the holder of the fixed income security to the seller of the swap.
The RBI observed that the objective of introducing CDS on corporate bonds is to provide market participants a tool to transfer and manage credit risk in an effective manner through redistribution of risk.
In October, RBI issued a formal notification specifying that CDS is a derivatives instrument.