The RBI has finalised the regulatory framework for novation of over-the-counter (OTC) derivative contracts, based on stakeholder feedback, enhancing risk management and settlement efficiency in financial markets.
RBI Finalises OTC Derivatives Novation Framework
On September 22, 2026, the Reserve Bank of India issued final directions on the novation of over-the-counter (OTC) derivative contracts, following the draft framework released on July 9, 2025. The finalised instructions, communicated to all eligible market participants, establish a regulatory structure to facilitate the transfer of derivative obligations between parties, enhancing market efficiency and counterparty risk management.
The framework is designed to support central clearing, reduce systemic risk, and ensure smooth settlements in times of default or restructuring. The RBI has provided a statement summarising major stakeholder feedback and its responses, indicating revisions to reporting timelines, eligibility criteria for novation, and operational standards for clearing agencies and counterparties.
Practitioners in financial law and derivatives trading must integrate these directions into contract templates and risk frameworks. Legal teams should advise clients on novation clauses in ISDA agreements, operational readiness, and reporting duties. The move aligns India’s derivatives market with global best practices, particularly under the G20 financial reforms.