RBI finalises framework for novation of over-the-counter derivative contracts following stakeholder feedback.
RBI Issues Final Directions on OTC Derivative Novation
The Reserve Bank of India has issued final directions on the novation of over-the-counter (OTC) derivative contracts after considering feedback on the draft version released on July 9, 2025. The final framework, notified on September 22, 2026, provides clarity on the legal and operational aspects of contract substitution in derivative transactions.
Novation involves the transfer of rights and obligations from one party to another, with consent of all parties. The directions set out eligibility criteria, documentation standards, and reporting requirements to mitigate counterparty risk and ensure market integrity.
This development is significant for financial institutions and market participants engaged in derivatives trading. Practitioners must ensure that internal risk and legal frameworks are updated to comply with the finalised novation process, which enhances legal certainty in India’s growing OTC derivatives market.