RBI (Forward Contracts in Government Securities) Directions, 2025
RBI has released norms for forward contracts in government securities (G-secs) to enable market participants, especially long-term investors, to manage their cash flows and interest rate risk. These directions for forward contracts, or bond forwards, undertaken in the Over-the-Counter (OTC) market in India, will come into force with effect from May 2, 2025.
For the purpose of entering into deals, a bond forward refers to a rupee interest rate derivative contract in which one counterparty (buyer) agrees to buy a specific government security (G-sec) from another counterparty (seller). The contract specifies a future date and a price determined at the time of the contract.
A resident and a non-resident who is eligible to invest in government securities under the Foreign Exchange Management (Debt Instruments) Regulations, 2019, can participate in such transactions. Any entity eligible to be classified as a non-retail user shall be eligible to undertake transactions in bond forwards as a user.
Scheduled commercial banks and standalone primary dealers can act as market makers for bond forwards. However, small finance banks, payment banks, local area banks, and regional rural banks are excluded from the category of players allowed to engage in market-making.
A market-maker may undertake long positions without any limit and covered short positions in bond forwards. A market-maker permitted to undertake short sales will also be eligible to undertake uncovered short positions, but only when the underlying government security is also eligible for short sale.
