SEBI

SEBI amends rules for Mutual Funds entering plain vanilla Interest Rate Swaps for hedging

SEBI amends conditions for Mutual Funds entering into plain vanilla Interest Rate Swaps (IRS) for hedging purposes.

SEBI has issued Circular No. Cir/IMD/DF/11/2010 dated August 18, 2010 providing that Mutual Funds may enter into plain vanilla interest rate swaps for hedging purposes. It was provided that the counter party in such transactions has to be an entity recognized as a market maker by RBI. Further, the value of the notional principal in such cases must not exceed the value of respective existing assets being hedged by the scheme. Exposure to a single counterparty in such transactions should not exceed 10% of the net assets of the scheme.

Mutual Funds entering into plain vanilla Interest Rate Swaps for hedging purposes – Norms for investment and disclosure by Mutual Funds in Derivatives

SEBI has now issued SEBI/HO/IMD/IMD-I DOF2/P/CIR/2021/580 dated 18th June 2021 to provide that Mutual Funds may enter into plain vanilla Interest Rate Swaps (IRS) for hedging purposes.

The value of the notional principal in such cases must not exceed the value of respective existing assets being hedged by the scheme.

In case of participation in IRS is through over the counter transactions, the counter party has to be an entity recognized as a market maker by RBI and exposure to a single counterparty in such transactions should not exceed 10% of the net assets of the scheme. However, if mutual funds are transacting in IRS through an electronic trading platform offered by the Clearing Corporation of India Ltd. (CCIL) and CCIL is the central counter party for such transactions guaranteeing settlement, the single counterparty limit of 10% shall not be applicable.

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