Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022

Question 1

……………. of CDS means a settlement process in which the price of the reference/deliverable obligation at which the settlement will happen is determined through an auction mechanism.

Answer 1

Auction settlement

Question 2

………………. of CDS means a settlement process in which the protection seller pays to the protection buyer, the notional amount of the CDS contract less the expected recovery value of the reference obligation.

Answer 2

Cash settlement

Question 3

…………………….. 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.

Answer 3

Central counterparty

Question 4

………………. means a derivative contract whose value is derived from the credit risk of an underlying debt instrument.

Answer 4

Credit derivative

Question 5

………………………… means a debt instrument issued by the reference entity that the protection buyer can deliver to the protection seller in a physically settled CDS contract, in case of occurrence of a credit event.

Answer 5

Deliverable obligation

Question 6

………………. means a pre-defined event in a credit derivative contract, which triggers a settlement under the contract

Answer 6

Credit event

Question 7

means a CDS contract in which the underlying is a single reference entity.

Answer 7

Single-name CDS

Question 8

……………….. means the activity of undertaking a credit derivative transaction to reduce credit risk of a particular debt instrument or a portfolio of debt instruments.

Answer 8

Hedging

Question 9

Who are eligible participant in Credit Derivative Market?

Answer 9

Residents. NRIs who are eligible to invest in corporate bonds and debentures under the Foreign Exchange Management (Debt Instruments) Regulations.

Question 10

Who are market makers for CDS?

Answer 10

Scheduled Commercial Banks excluding PB, RRB, SFB, LAB. NBFC including SPD and HFCs subject to having minimum NOF of ₹500 crore and permission from DOR. EXIM, NABARD, NHB, SIDBI.

Question 11

Retail users shall be allowed to buy protection only for the purpose of …………..

Answer 11

Hedging

Question 12

Non-retail users shall be allowed to buy protection for ………………….

Answer 12

Hedging or otherwise.

Question 13

Market-makers shall report all OTC CDS transactions within ………….. of the transaction, to the trade repository of Clearing Corporation of India Ltd. (CCIL)

Answer 13

30 minutes