e   rit  ar et in ndia    14.27
                market maker can buy and sell a security)                     Till March 2017, the RBI has taken a
                requirement in corporate debt repo have                 number of measures to strengthen the corporate
                been reduced from the existing 10 per                   bond market in India. It accepted many of the
                cent; 12 per cent; 15 per cent to 7.5 per               recommendations of the Khan Committee (August
                cent; 8.5 per cent; 10 per cent for AAA/                2016) to boost investor participation and market
                AA+/AA-rated corporate bonds.                           liquidity in the corporate bond market. The new
                                                                        measures as announced by the RBI include:
        (iv)    MFs have been permitted to participate
                in CDS in corporate debt securities, as                       (i) Commercial banks are permitted
                                                                                  to issue rupee-denominated bonds
                                                                                  overseas (masala bonds) for their
         (v)    Revised guidelines on CDS for corporate                           capital requirements and for financing
                bonds by the RBI provide that in addition                         infrastructure and affordable housing.
                to listed corporate bonds, CDS shall
                                                                             (ii) Brokers registered with the Securities
                also be permitted on unlisted but rated                           and Exchange Board of India (SEBI) and
                corporate bonds even for issues other                             authorized as market makers in corporate
                than infrastructure companies.                                    bond market permitted to undertake
        (vi)    Users shall be allowed to unwind17 their                          repo/reverse repo contracts in corporate
                CDS-bought position with the original                             debt securities. This move will make
                protection seller at a mutually agreeable                         corporate bonds fungible and thus boost
                or FIMMDA (Fixed Income Money                                     turnover in the secondary market.
                Market and Derivatives Association of                       (iii) Banks allowed to increase the partial
                India) price. If no agreement is reached,                         credit enhancement they provide for
                then unwinding has to be done with the                            corporate bonds to 50 per cent from 20
                original protection seller at FIMMDA                              per cent. This move will help lower-rated
                price.                                                            corporates to access the bond market.
       (vii)    CDS shall be permitted on securities                        (iv) Permitting primary dealers to act as market
                with original maturity up to one year like                        makers for government bonds, to give
                CPs, certificates of deposit, and non-                            further boost to government securities
                                                                                  by making them more accessible to retail
                convertible debentures with original
                maturity less than one year.
                                                                             (v) To ease access to the foreign exchange
      17.   Unwind is used to close out a position that has offsetting            market for hedging in ‘over the counter’
            investments or the correction of an error. Unwinds
                                                                                  (OTC) and exchange-traded currency
            occur when, for example, a broker mistakenly sells
            part of a position when an investor wanted to add to                  derivatives, the entities exposed to
            it. The broker would have to unwind the transaction                   exchange rate risk allowed to undertake
            by selling the erroneously purchased stock and buying                 hedge transactions with simplified
            the proper stock. One type of investing that features
            unwind trading is arbitrage investing (as happens in the              procedures, up to a limit of US$30
            CDS). If, for the sake of illustration, an investor takes a           million at any given time.
            long position in stocks, while at the same time selling
            puts on the same issue, he will need to unwind those
            trades at some point. Of course, this entails covering         inflation-inDexeD BonDS
            the options and selling the underlying stock. A similar
            process would be followed by a broker attempting to         To protect the returns of investors from the vagaries
            correct a buying or selling error.                          of inflation, the Reserve Bank of India plans to