Mumbai: India’s fledgling credit default swap (CDS) market kicked-off on Wednesday, sooner than expected, with two deals covering Rs100 million ($1.9 million) worth of bonds, according to data on the Reserve Bank of India’s trading platform.
The deals, both 1-year trades between ICICI Bank and IDBI Bank, according to a source with direct knowledge of the matter, came nearly a week after the central bank’s launch of the instrument.
The trades were both at 90 basis points and covered Rs50 million each of 10-year bonds issued by Rural Electrification Corp (REC) and India Railway Finance Corp, according to details on the Clearing Corp of India Ltd’s website.
The market was expecting the first trades in early January, with collateral and margining requirements still to be finalized. The Fixed Income Money Market and Derivatives Association of India (FIMMDA) will hold a meeting on Thursday to discuss those details.
Three traders at different foreign banks said Wednesday’s trades appeared to be “ceremonial,” with details on collateral and margining still in the works.
IDBI said in a statement it had underwritten India’s first CDS deal but did not give details. An official with ICICI could not immediately be reached for comment.
The Reserve Bank of India last week allowed banks to begin hedging their banking and trading books using CDS, signaling that the infrastructure was finally in place for the launch of the instruments in Asia’s fourth biggest bond market.
India had twice attempted to launch CDS trading but plans were delayed over matters such as monitoring, reporting, valuation, regulation and weak bankruptcy laws. The launch of a CDS market is seen as a key for adding depth to India’s corporate bond market.