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Eligible market participants must exchange variation margin for non-centrally cleared derivative contracts based on defined entity thresholds and calculation rules. Domestic and foreign covered entities calculate average aggregate notional amounts of outstanding non-centrally cleared derivatives to establish applicability. Covered entities calculate variation margin daily and exchange the margin within three local business days from the transaction date or margin recalculation date. Eligible collateral includes cash, government debt securities, and listed rupee bonds subject to specified haircuts and asset standards. The directions take effect on December 01, 2022.
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RBI/2022-23/93
FMRD.DIRD.02/14.01.023/2022-23
June 01, 2022
To
All Eligible Market Participants
Madam/Sir
Master Direction – Reserve Bank of India (Variation Margin) Directions, 2022
Please refer to Paragraph 10 of the Statement on Developmental and Regulatory Policies announced as a part of the Bi-monthly Monetary Policy Statement for 2019-20 dated February 06, 2020, on issuance of the Directions regarding exchange of variation margin (VM) for non-centrally cleared derivatives (NCCDs).
Yours faithfully,
(Dimple Bhandia)
Chief General Manager
FINANCIAL MARKETS REGULATION DEPARTMENT
Notification No. FMRD.DIRD.03/14.01.023/2022-23 dated June 01, 2022
Master Direction - Reserve Bank of India (Variation Margin) Directions, 2022
In exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934 (hereinafter called the Act) read with section 45U of the Act, 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 (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification no. FEMA.25/RB-2000 dated May 3, 2000), Foreign Exchange Management (Debt Instruments) Regulations, 2019 (Notification No. FEMA 396/2019-RB dated October 17, 2019) and Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020 (Notification no. FEMA.399/RB-2020 dated October 23, 2020).
(1) These Directions shall be called the Master Direction – Reserve Bank of India (Variation Margin) Directions, 2022.
(2) These Directions shall come into force with effect from December 01, 2022.
(1) The provisions of these Directions shall apply to the following contracts, which are entered into on or after the date on which these Directions come into force:
(2) Genuine amendments, including the following, to an existing derivative contract entered into before the date on which these Directions come into force (‘grandfathered contract’) will not qualify as a new derivative contract under these Directions.
(1) In these Directions, unless the context otherwise requires:
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.
Consolidated group means a group within the meaning of Indian Accounting Standard (Ind AS) 110 - Consolidated Financial Statements, or International Financial Reporting Standards (IFRS) 10 - Consolidated Financial Statements or any other equivalent accounting standards.
Collateralise to market means an approach to the exchange of Variation Margin wherein the exchanged margin is characterised as collateral to secure the current mark-to-market exposure between the parties to a derivative contract.
Financial sector regulator refers to the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA).
Netting agreement shall have the same meaning as assigned to it in Section 2(1)(k) of The Bilateral Netting of Qualified Financial Contracts Act, 2020 (30 of 2020).
Non-centrally cleared derivatives (NCCDs) mean derivative contracts whose settlement is not guaranteed by a central counterparty.
Non-resident means and includes a ‘person resident outside India’ as defined in Section 2(w) of the Foreign Exchange Management Act, 1999 (42 of 1999).
Related parties shall have the same meaning as assigned to it under Indian Accounting Standard (Ind AS) 24 – Related Party Disclosures or International Accounting Standard (IAS) 24 – Related Party Disclosures or any other equivalent accounting standards.
Resident means and includes a ‘person resident in India’ as defined in Section 2(v) of the Foreign Exchange Management Act, 1999 (42 of 1999).
Settle to market means an approach to the exchange of Variation Margin wherein the exchanged margin is deemed to settle the current mark-to-market exposure between the parties to a derivative contract, with no right to reclaim and no obligation to return the Variation Margin. After the settlement, the mark-to-market exposure between the parties is reset to zero.
Variation margin means the collateral that is collected or paid to reflect the current mark-to-market exposure resulting from changes in the market value of a derivative contract.
(2) Words and expressions used but not defined in these Directions shall have the meaning as assigned to them in the Reserve Bank of India Act, 1934.
(1) The following entities shall be classified as Domestic Covered Entities under these Directions:
(2) The following entities shall be classified as Foreign Covered Entities under these Directions:
(3) For the purposes of paragraph 4.1 (1) and (2), AANA of outstanding NCCDs shall be calculated as set out in paragraph 4.2.
(1) AANA of outstanding NCCDs shall be calculated as the simple average of the total notional amount of outstanding NCCDs as at the end of March, April and May of a year. AANA for a year shall be used for recognition of Domestic Covered Entities and Foreign Covered Entities for a one-year period from September 1 of that year to August 31 of the next year.
