for the fx derivatives at present. there are proposals to introduce repository structure for usd - inr forwards ( including swaps ) and options. central counterparty clearing : ccil has put in place guaranteed settlement for fx forward transaction effective from the date of contract since december 2009. in case of irs, ccil has been providing non - guaranteed settlement since november 2008. it is expected to transit to guaranteed settlement for irs transactions shortly. portfolio compression : an important innovation in otc derivative markets introduced during the last few years relates to portfolio compression services. since the only way to exit a position in an otc derivative is to enter into another with opposite pay off, the gross notional outstanding multiplies manifold as a result. huge build - up in gross notional outstanding demands higher capital charges and reduces the available counter - party limits for undertaking other business transactions. moreover, it does not capture the economic essence of the portfolios. ccil is the process of developing trade compression services. generally speaking, our approach to financial markets development has been calibrated, keeping in mind the overall objectives of financial sector development. particularly at this juncture, while we intend to expand set of products and instruments available, we also wish to emphasize the improvement in the pre and post - trading infrastructure as well as consolidation of the regulatory regime so that financial stability is not threatened. development of markets in india exchange traded products provide the benefits of transparent pricing and robust risk management. the reserve bank introduced currency futures and interest rate futures on the exchanges with a view to increasing the depth and breadth of the derivatives market, in turn helping to provide an effective risk management framework to users. currency futures were launched on the national stock exchange ( nse ) in august 2008 and subsequently on other exchanges. european style option on usd - inr pairs was launched on nse and use in october 2010. the biggest challenge in designing a framework for exchange traded currency derivatives in india was the prevailing regulatory system for the otc products. in the otc environment, there is an elaborate framework for regulating transactions, including derivatives, and the presence of an underlying exposure is an essential requirement. it was not possible to carry over this requirement onto the exchange traded market. to deal with this, even if partially, position limits have been imposed on exposures to exchange traded products. interest rate futures ( irf ) contracts on 10 - year notional coupon bonds were launched on nse in august 2009. persons resident in india and fiis have been

subir gokarn : regulatory perspectives on derivatives markets in india keynote address by dr subir gokarn, deputy governor of the reserve bank of india, at the international options market association, world federation of exchanges annual conference, organised by the national stock exchange, mumbai, 4 may 2011. * * * inputs from sudarsana sahoo, edwin prabhu, rajib das, h. s. mohanty, nishita raje and g. mahalingam are gratefully acknowledged. introduction it is a pleasure for me to be speaking at this conference organized by the international options market association. the presence and role of derivatives in india, both otc and exchange traded, has been increasing steadily over the years. these instruments are an important component of the overall financial sector strategy and the broad regulatory objective is to ensure that they are used to their potential in ways that are consistent with both financial development and the contribution of financial markets to economic growth. i would like to begin by laying out a simple framework, which helps us think about financial sector development in terms of multiple objectives. this will provide a useful backdrop to the various issues relating to derivatives in india, which i will then go on to talk about. financial sector development can broadly be viewed as pursuing four objectives. efficiency : we can look at the notion of efficiency from two perspectives. for the provider of products and services, it means the ability to do this at the lowest possible cost, with the full benefit of technology and market infrastructure. for the user, efficiency relates to the availability of products and services which address his / her requirements at the lowest possible price. stability : from the viewpoint of the financial system, stability requires that aggregate risk is bounded in some way. this requires, in turn, that individual participants be required to mitigate and manage their own risks. however, in situations in which systemic risk goes beyond the aggregate individual risk, additional measures may be warranted. transparency : the basic premise is : “ what cannot be measured cannot be managed ”. the more market participants know about overall activities and outcomes, the better able they are to make their cost - benefit calculations and act on them, contributing to the overall effectiveness of the market. inclusion : financial development is not an end in itself. it serves the broader purpose of facilitating economic activity, through resource mobilization and risk management. the more accessible the financial system is to individuals in pursuit of these two objectives, the better. against this backdrop, i will address four