RBI pressures banks to trade bond futures

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rbiDetermined to turn its third attempt at launching bond futures into a success, the Reserve Bank of India (RBI) is pressuring state-owned banks to trade the derivatives that provide hedges against the country’s volatile interest rates, banking sources told Reuters.

Interest rate futures allow market participants to bet on the direction of bond yields.

Developing such a market is a key part of RBI Governor Raghuram Rajan’s push to deepen markets, by providing hedging tools commonly found in more developed economies.

India has long struggled to introduce these types of derivatives because of what traders say has been poor design. That has contributed to the migration of rupee-based derivatives trading to offshore financial centres such as Singapore.

Eager for a successful launch, RBI officials are making frequent phone calls to lenders encouraging them to trade, most overtly during a meeting held before the launch, according to several senior bankers who are in touch with the central bank.

Banks were told Rajan himself would be monitoring which banks were placing orders, scrutinising information in management information systems (MIS) or trading records, the sources said.

“RBI actually called people and threatened people saying that these MIS will go to governor, and the volumes and participation,” said a chief dealer with a state-owned bank.

“We have to close our eyes and ears and mouths and use this product,” he added.