The Bilateral Netting of Qualified Financial Contracts Act, 2020
Application of Act
Section 4: Powers of authority.
4. The relevant authority may, by notification,—
1(a) designate any bilateral agreement or contract or transaction, or type of contract regulated by it, as qualified financial contract:
Provided that the contract, so designated under this clause, shall not include any contract,—
(i) entered into between such parties and on such terms as the Central Government may, by notification, specify; or
(ii) entered into on multilateral basis in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 and the Payment and Settlement Systems Act, 2007;
2(b) specify any entity regulated by it, as a qualified financial market participant to deal in qualified financial contracts.
1. IFSCA notifies following Qualified Financial Contracts under clause (a) of the Section 4 vide Notification No. IFSCA/2020-21/GN/008 dated 2nd February, 2021:
“Qualified financial contract” means any privately negotiated bilateral financial contract executed outside a stock exchange, including any terms and conditions incorporated by reference in any such financial contract, pursuant to which payment or delivery obligations that have a market price are due to be performed at a certain time or within a certain period of time and includes
(i) a currency, cross-currency or interest rate swap;
(ii) a basis swap;
(iii) a spot, forward or other foreign exchange transaction;
(iv) a cap, collar or floor transaction;
(v) a commodity swap;
(vi) a forward rate agreement;
(vii) a currency or interest rate option;
(viii) a credit derivative, such as a credit default swap;
(ix) a spot, forward or other securities or commodities transaction;
(x) a securities contract, including a margin loan and an agreement to buy, sell, borrow or lend securities, such as a securities repurchase or reverse repurchase agreement, a securities lending agreement or a securities buy/sell-back agreement, including any such contract or agreement relating to mortgage loans, interests in mortgage loans or mortgage-related securities, a money market instrument;
(xi) a commodities contract, including an agreement to buy, sell, borrow or lend commodities, such as a commodities repurchase or reverse repurchase agreement, a commodities lending agreement or a commodities buy/sell-back agreement;
(xii) a collateral arrangement;
(xiii) an agreement to clear or settle securities transactions or to act as a depository for securities;
(xiv) any other agreement, contract or transaction similar to any agreement, contract or transaction referred to in paragraphs (i) to (xiii) with respect to one or more reference items or indices relating to, without limitation interest rates, currencies, commodities, interest, or precious metals; or
(xv) any other facility or agreement, contract or transaction designated as a qualified financial agreement by the Authority from time to time in addition to those listed above”
2. SEBI vide Notification No. SEBI/LAD-NRO/GN/2021/24 dated 12th May, 2021, specifies the following entities as qualified financial market participants, which subject to the provisions as may be specified by the SEBI, may enter into qualified financial contracts notified by any regulatory authority as specified in the First Schedule: –
1. Mutual Fund registered with SEBI; and
2. Alternative Investment Fund registered with SEBI.
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