New Delhi: The Reserve Bank of India has made it mandatory for all over-the-counter (OTC) derivative transactions to carry a Unique Transaction Identifier (UTI), in a bid to enhance transparency and strengthen regulatory oversight in the financial system.
Under the final circular, every OTC derivative deal—across interest rates, currencies, commodities and other segments—will now be assigned a distinct reference number, enabling precise identification, reporting and audit tracking. The move follows a draft framework issued earlier for stakeholder feedback, which has now been incorporated into the final guidelines.
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What changes now
With the UTI framework in place, each OTC transaction will have a standardised unique code, allowing regulators to aggregate data across institutions and monitor exposures more effectively. Until now, transaction data remained fragmented across multiple systems, making it difficult to obtain a consolidated view of market activity.
The new mechanism is expected to-
- improve traceability of individual trades
- reduce duplication and data inconsistencies
- enable global data aggregation
- help detect systemic risks at an early stage
What are OTC deals
OTC trades are bilateral financial contracts executed directly between two counterparties rather than on exchanges such as NSE or BSE. These deals are typically customised and are widely used by banks, financial institutions and large corporates for hedging interest rate, currency or commodity risks.
In contrast, exchange-traded products operate on transparent price discovery, standardised contracts and tighter regulatory supervision, with participation open to retail investors. OTC markets offer flexibility but have historically posed challenges in terms of data visibility and risk monitoring.
Implications for retail participants
The new rule does not directly affect retail bank deposits, fixed deposits or exchange-based equity trading. However, by improving oversight of large derivative exposures within the banking and financial system, it is expected to enhance overall financial stability—an outcome that ultimately benefits depositors and investors.
Technology upgrades for banks
Banks and financial institutions will be required to upgrade their IT infrastructure to tag every OTC derivative transaction with a UTI. This will strengthen reporting accuracy, regulatory surveillance and audit trails. While the transition may involve initial system costs, market experts say the long-term gains in risk management and compliance will outweigh the expenses.
Why the move was necessary
Post the global financial crisis, regulators worldwide have pushed for greater transparency in derivative markets to prevent hidden build-ups of risk. Without unique identifiers, tracking large and complex exposures across counterparties becomes difficult, especially during periods of market stress.
The UTI framework will provide regulators with near real-time visibility into market positions, enabling faster assessment of vulnerabilities and timely policy intervention.
Financial sector analysts view the measure as a technical but significant reform that will improve discipline in the OTC derivatives space, strengthen supervisory capabilities and align India’s regulatory architecture with global best practices.
In essence, the introduction of UTIs is expected to make the OTC derivatives market more transparent, traceable and resilient, reinforcing the long-term stability of the financial system.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
