its limited liquidity. there is a need to re - visit the issues hindering bis central bankers ’ speeches development of the cds market, such as, non - availability of netting benefit of marked to market ( mtm ) leading to higher capital charges for the market players, dominance of high rated bonds not warranting any need for credit risk protection, procedural issues for some of the foreign banks being reluctant to execute credit support annexes ( csa ), large players like insurance companies not being able to sell protection, etc. the reserve bank is examining some of the prudential conditions that can be relaxed without compromising systemic stability. financial market infrastructure 29. as i mentioned earlier, the considered view of the gfc is that it is not so much the derivative products that are to be blamed but the infrastructure for trading and the risk management and regulations of the institutions. the corrective steps to prevent the recurrence of such a crisis have focussed a great deal on improving the transparency and risk management in the market infrastructure. let me quote from the pittsburgh declaration of g - 20 leaders summit. it stated, “ all standardized otc derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end - 2012 at the latest. otc derivative contracts should be reported to trade repositories. non - centrally cleared contracts should be subject to higher capital requirements. we ask the fsb and its relevant members to assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse. ” keeping in view the thrust of the g20 on reforms in the otc derivatives market, reserve bank has drawn up and is implementing a roadmap focussed on standardisation ( e. g., ois has been standardised ) reporting to the trade repositories { e. g., all foreign exchange and interest rate derivatives are reported to the clearing corporation of india limited ( ccil ) }, central clearing ( e. g., 90 per cent of the irs currently are being cleared through the central counter party, i. e., the ccil ) & exchange or electronic platform based trading ( e. g., permission to ccil to start electronic trading platform for the irs ). 30. the need for robust market infrastructure has been recognised in india quite early. settlement of financial contracts through a central counterparty ( ccp ) mechanism is a key risk -

special position granted to them under the act and the regulations, have been found to be using innovative ways to structure transactions in a manner to circumvent regulations. 1 / 4 bis - central bankers'speeches during the course of our onsite examinations, we have come across instances where arcs have been used or allowed themselves to be used, if i may say so, as a conduit to evergreen distressed assets. in many cases, there is a lack of transparency and consistency in the issuance and periodical valuation of security receipts ( srs ). the practices surrounding levy of management fee leaves much to be desired. it is also observed that a few entities find new ways of achieving their designs once a particular practice has been called out as a violation or deviation. wherever it had come to our notice, we had directed the entities to arrange for remediation including setting aside capital charge on gains thereon but only a responsible conduct by the supervised entities themselves can bring the required efficiency to the system. in extreme cases, it may call for regulatory or supervisory actions which of course we would like to use only as a last resort. with regulations shifting towards a more principles - based approach, supervision is required to focus more on the substance of transactions rather than their legal form. this means that supervisors, instead of relying on the technical compliance presented by the management, may have to scrutinise the economic purpose and the underlying unstated intent behind the transactions. very often we get representations to our observations stating this is industry practice or clarifications are pending from the rbi. sometimes there are incorrect or intelligent interpretations of the circulars. these are not acceptable excuses for failing to do the right thing. therefore, i would urge you all to adopt a regulation plus approach where you not only comply with the letter of the regulation but also its spirit. robust governance led by the board is a pre - requisite to ensuring that arcs fulfil their intended mandate. towards this objective, i would like to share with you a few thoughts on the effective functioning of the board. effective functioning of the board effective functioning of the board requires several elements including competent leadership, committed directors with diverse expertise, independence, clarity in roles and responsibilities and diligence. the chairperson of the board is the guardian of governance acting as a lynchpin between the board, the management, and the shareholders. a good chairperson facilitates constructive discussions, encourages diverse perspectives, and guides the board towards consensus on critical matters. however,