The Securities and Exchange Board of India (SEBI) on June 07, 2024, issued a consultation paper on Flexibility in Participation by Mutual Funds in Credit Default Swaps (CDS).
The following has been stated: -
•The objective of this consultation paper is to seek comments from the public on the proposal for allowing greater flexibility in participation by Mutual Funds in Credit Default Swaps
•A Credit Default Swap (CDS)means a credit derivative contract in which one counterparty (protection seller) commits to pay to the other counterparty (protection buyer) in the case of a credit event with respect to a reference entity and in return, the protection buyer makes periodic payments (premium) to the protection seller until the maturity of the contract or the credit event, whichever is earlier.
•Thus, buying a CDS is akin to buying insurance. In case any debt security on which a CDS is bought defaults, the protection seller (i.e., a seller of CDS) pays the notional amount (amount of debt security) and takes over the debt security in default.
•Public comments are invited. The comments/ suggestions should be submitted through the following link by July 01, 2024.
URL: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes
The detailed paper is given in the document below.
