India is planning an electronic platform for trading bond forwards, according to people familiar with the matter, in a bid to improve price discovery in a market that operates largely over the counter.
The Clearing Corp. of India Ltd. has been working with lenders on a proposed design and is preparing to submit the plan to the central bank for approval, the people said, asking not to be named as the discussions are private.
Spokespeople for the CCIL and the Reserve Bank of India didn’t immediately respond to requests for comments. Business Standard on Monday reported that the CCIL is working on a dedicated platform for bond forward trades, with a rollout likely in the current quarter.
Bond forwards, introduced in government securities last year, are currently negotiated bilaterally, leaving pricing opaque. A centralized venue for one of India’s most-traded bond derivatives could help standardize deals and boost transparency and liquidity.
The platform will have a ‘request-for-quote’ mechanism, where buyers and sellers can compare different prices for securities on a single platform, the people said.
Bond forwards are widely used by Indian insurers to hedge interest-rate risk. Banks typically sell the contracts, agreeing to deliver securities at a fixed price on a future date.
All trades in bond forwards and forward rate agreements — a similar cash-settled derivative — need to be reported to CCIL. The total value of trades reported was 2.7 trillion rupees ($28.3 billion) as of April 22.
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