India's emerging swaps and options market still faces a potential obstacle from an Act dating back to 1872, which could deem over-the-counter derivatives wagers. No case law has yet tested this, but it is a risk to derivative buy- and sell-siders until India's parliament approves updated definitions of derivatives.
The parliament is now reviewing a daft bill amending the Reserve Bank of India Act of 1934, which includes a definition of OTC derivatives, although certain asset classes such as commodities or weather derivatives may not be included, leaving them open to the wager classification. Akash Mohapatra, director and senior legal counsel for Asia at Deutsche Bank, said the International Swaps and Derivatives Association is hopeful India's parliament will expand the definition and also the range of entities which can use derivatives.
Separately, the uncertain status of market-access products in the country is also bugging dealers, as the dispute between the Securities and Exchange Board of India and UBS over an equity market crash and know-your-customer requirements drags on. SEBI has now taken UBS to the supreme court (DW, 10/28) and Mohapatra, said it could be 12-18 months before there is a decision. During this time, he added, SEBI is unlikely to clarify its know-your-customer rules, leaving dealers looking to issue market-access notes uncertain as to what SEBI wants.
