Infra recognition key point in FBIL spat with regulators abroad: RBI Dy Guv


After having recently said the gaze of developed economies is now on Financial Benchmarks of India (FBIL), Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar has said the issue is recognising the financial of the domestic agency. This comes after the derecognition by the European Securities and Markets Authority (ESMA) of Clearing Corporation of India (CCIL).

“The legal requirements of recognition of — financial — extend to FBIL because it is doing benchmarks. A similar sort of exercise (similar to the ESMA’s de-recognition of CCIL) is going on in FBIL as well. Which is why the point has been raised,” Rabi Sankar said on the sidelines of an event organised by the Indian Banks’ Association on Saturday. CCIL hosts the trading platform for government bonds and overnight indexed swaps (OIS). The move by the European regulators likely came after the Reserve Bank of India (RBI) declined to permit the rights of audit and inspection over CCIL.

“Essentially, offshore regulators would want things like file reports of transaction legs, etc from FBIL. Every regulator wants to have an oversight on participants operating within their domain,” a treasury official said.

Commenting on CCIL’s de-recognition, which was done also by the Bank of England (BoE), Rabi Sankar said talks were on regarding this. The ESMA’s move, announced on October 31, comes into effect on May 1, 2023. If it happens, the decision will hamper the bond and derivative trading operations of European banks in India.

“We are engaging with them (ESMA and BoE). This is continuing, and we will be able to find a resolution to this,” Sankar said.

Addressing a seminar organised by FBIL on November 28, Sankar had said the extra-jurisdictional overreach over FBIL posed a potential disruption threat to foreign exchange markets — both onshore and non-deliverable forwards (NDF).

FBIL, owned by the Fixed Income Money Markets and Derivatives Association, the Foreign Exchange Dealers’ Association of India, and the Indian Banks’ Association, was formed in December 2014. It develops and administers benchmarks for money markets, government securities, and foreign exchange.

The RBI had in 2019 issued directions of financial benchmark administrators and put in place a regulatory framework for them in markets regulated by it.

FBIL’s benchmarks include the Mumbai Interbank Offered Rate (MIBOR), the Market Repo Overnight Rate, and the Mumbai Interbank Forward Offer Rate (MIFOR), and the reference rate for the rupee versus four currencies — the dollar, the pound, the euro and the yen.

It also values government securities as well as benchmark rates for certificates of deposits issued by banks.

The MIBOR is the reference rate for overnight indexed swaps, which are the key tool for hedging interest rate risk in India. Open interest in OIS contracts has gone up to Rs 77 trillion this fiscal year from Rs 19 trillion in 2016-17, Rabi Sankar recently said.

In the foreign exchange market, FBIL’s reference rate is used for settling NDFs and exchange-traded futures. The average daily turnover in NDFs, or offshore rupee trades, grew to $46.4 billion in 2022 from around $16.4 billion in 2016, the RBI deputy governor said last month.

The Bank of International Settlements (BIS) 2019 triennial survey showed the rupee’s volumes in offshore markets surpassed those of the onshore market.

In April 2019, the combined domestic spot and exchange-traded volumes were around $48 billion, currency dealers said.

The 2022 round of the triennial survey of over-the-counter foreign exchange turnover showed the rupee’s share globally had dipped to 1.6 per cent from 1.7 per cent three years ago. In exchange-traded derivatives, however, the rupee’s share was the fourth-largest, at 12.9 per cent.

What is FBIL?

  • In June 2013, RBI set up a committee on financial benchmarks

  • In 2014, RBI identified FIMMDA, FEDAI as benchmark administrators for interest rate and forex

  • FIMMDA, FEDAI & IBA formed a separate entity to administer benchmarks, leading to formation of FBIL in Dec 2014

  • FBIL develops and administers benchmarks for money markets, G-Secs and foreign exchange

  • Benchmarks include MIBOR, MIFOR, and rupee’s reference rate versus 4 currencies

  • FBIL reference rate is used for rupee offshore settlements

  • Overseas regulators’ over-reach on FBIL stands to severely affect India’s foreign exchange market


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