India is set to launch an electronic platform for trading bond forwards, aiming to enhance price discovery in a market that currently largely operates over the counter. According to sources familiar with the matter, the Clearing Corp. of India Ltd. (CCIL) has been collaborating with financial institutions to develop a proposed design for the platform, which is expected to be submitted to the Reserve Bank of India for approval.
Business Standard reported that the CCIL is working on a dedicated platform for bond forward trades, with a potential rollout anticipated within the current quarter. Requests for comments from spokespeople for both CCIL and the Reserve Bank of India went unanswered at the time.
Bond forwards, which were introduced for government securities last year, are presently negotiated bilaterally, resulting in a lack of transparency in pricing. A centralized platform for one of India’s most frequently traded bond derivatives could standardize transactions and enhance both transparency and liquidity in the market.
The new platform will include a ‘request-for-quote’ mechanism, allowing buyers and sellers to compare prices for different securities on a unified platform. Bond forwards are commonly used by Indian insurers to mitigate interest-rate risk, while banks usually issue these contracts, committing to deliver securities at a predetermined price on a future date.
All transactions involving bond forwards and forward rate agreements, a similar cash-settled derivative, must be reported to CCIL. As of April 22, the total value of reported trades amounted to 2.7 trillion rupees (approximately $28.3 billion).
