The Reserve Bank of India (RBI) on Wednesday released draft directions to regulate the novation of over-the-counter (OTC) derivative contracts, aiming to streamline and rationalise the regulatory requirements for such transactions.Novation, under the draft guidelines titled Reserve Bank of India (Novation of OTC Derivative Contracts) Directions, 2025, refers to replacing an existing market maker in an OTC derivative contract with a third-party transferee. The transaction must be executed at prevailing market rates and with the prior consent of the remaining counterparty, PTI reported.According to the RBI, “The novation of an OTC derivative contract shall be done with the prior consent of the remaining party.”To ensure clarity and uniformity in execution, the RBI has directed that standard agreements for novation be developed. These will be prepared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and the Foreign Exchange Dealers’ Association of India (FEDAI), in consultation with market participants and taking into account international best practices.Alternatively, market participants may use standard master agreements for novation, the draft noted.The current framework for novation of OTC derivatives is governed by an RBI circular issued on December 9, 2013. The provisions of the circular have been reviewed in the light of changes in the overall regulatory framework governing OTC derivatives since 2013 and the market feedback received, as well as with a view to rationalising the related regulatory requirements, the RBI said.