CDS in India
In India, RBI has come out guidelines on CDS in corporate bonds in 2011 which was revised in 2013.
As per the guidelines CDS players have been divided into following two categories:
(a) Market Makers: - These are comprised of commercial banks, primary dealers (PDS) and non-banking financial companies (NBFCs). They can buy or sell without any underlying position in the bond i.e. Naked CDS.
(b) Users: - These are comprised of mutual funds (MFs), Insurance Companies, Housing Finance Companies, Provident Funds, Listed Companies and Foreign Institutional Investors (FIIs). They can use CDS only as a hedge tool to offset the risk of an underlying position, and are not allowed to sell CDS other than to exit the existing long positions.
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