Clearing Corp set to guarantee forward contracts, rate futures.....
In a move that will boost trading in interest rate derivatives, Clearing Corporation of India (CCIL) has developed two new products which will guarantee forward contracts and over-the-counter interest rate futures.
Although CCIL has already developed softwares to introduce guarantees, it awaits the notification of the Payments and Settlements Act, CCIL chairman RH Patil said on Friday. At present, CCIL guarantees only cash and spot contracts and not forward transactions.
According to Mr Patil, all banks take part in forward contracts as well as interest rate futures, but at present, there is no legislative guidelines or guarantees in case of any kind of defaults.
The Payments and Settlements Act, which has already been ratified by the President of India, is yet to be formally notified by the ministry of finance. Also, RBI will be issuing a detailed set of guidelines in accordance with the Act.
According to RBI chief general manager AP Hota, the Act gives the RBI the power to regulate all entities in the country that indulge in payments and monetary settlements.
Speaking at a conference organised by the Indian Bankers’ Association (IBA) Mr Hota expressed his concerns about high value-clearings not being backed by a proper settlement guarantee. “RBI is concerned about the large values flowing through CCIL’s various channels. Should there be any default, it will have a cascading effect in the entire industry,” he said.
CCIL was set up in April 2001 for providing exclusive clearing and settlement for transactions in the government security and money markets. It also conducts Collateralised Borrowing and Lending Obligation (CBLO) operations on a daily basis and handles average daily amounts in excess of Rs 50,000 crore.
The central bank has developed the payments and settlements guidelines in accordance with international standards prescribed by the Bank of International Settlements (BIS) in 2001. According to Mr Hota, “India was partly compliant to these core principles, but there was an absence of a multilateral netting legislation.” The Act will now enable the Indian payment systems to meet international standards, he added.
Mr Hota also stressed on the initiatives RBI had taken to promote electronic payments in the country. According to him, the percentage of non-cash transactions has almost doubled from 14% to 26% in the past couple of years. “We should aim at taking this number to 50%,” he said.
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