Roadmap for bond forward trade based on talks with market participants: CCIL
24 Aug 2021
NEW DELHI: After informal talks with some participants in the government bond market, the Clearing Corporation of India Limited has put forward the roadmap for a proposal to introduce forward trading in government securities.
In a forward bond trade, the seller agrees to provide certain securities to the acquirer on a mutually agreed date and a specified price and quantity.
The settlement of such transactions takes place either by delivery of bonds on the settlement date or through cash settlement, which takes into account price differentials.
“From our discussions, it is felt that the primary demand for forward trading in Government of India securities comes from insurance companies,” a release on the CCIL’s website said.
“There are indications that, subject to regulatory approvals, if CCIL were to provide a facility for forward trading in government securities, then banks are also likely to participate in this market.”
According to the proposed roadmap, Clearcorp Dealing Systems Limited, a subsidiary of the CCIL, may provide members with a platform for forward trading in government bonds.
The proposed platform, which would facilitate bilateral transactions, would have all the features of the current Negotiated Dealing System – Order Matching platform, CCIL said.
Bond forward trading may also be allowed in all bonds that have International Securities Identification Numbers eligible for trade in the secondary market, CCIL said, adding that there would be no restriction placed on the tenor of the trade.
“Once the forward trades enter the settlement window for outright trades, these trades need to be taken up for CCP clearing with other cash market trades concluded or reported on NDS OM. All forward bond trades will be physically settled just like other cash market trades in CCIL’s Securities segment,” the clearing house said.