Through this transition period, the overall regulatory approach towards OTC derivative markets is as important as addressing the transactional aspects. In India, unlike the developed financial markets where OTC derivative markets epitomised complex, unregulated financial innovations that grew exponentially over the last two decades, the OTC derivative markets have evolved within a regulated space.
The major elements of this regulatory framework include a broad specification of products to be permitted, nature of participants in the markets, distinct responsibilities for market makers and users for all OTC derivatives, effective reporting systems for capturing systemic information and focus on developing market infrastructure for post-trade clearing and settlement.