Exchange Traded Interest Rate Futures on 2-year and 5-year Notional Coupon Bearing Government of India Security
Summary
SEBI permits eligible stock exchanges to introduce cash-settled futures on 2-year and 5-year notional coupon-bearing Government of India securities after obtaining prior approval. The circular outlines specific product design parameters, including contract size, trading hours, settlement mechanisms, and margin requirements for these derivatives. These regulations are issued under Section 11(1) of the SEBI Act to protect investor interests and regulate the securities market. This section details the settlement mechanism for government securities, specifying that polling is conducted by FIMMDA from ten randomly selected Primary Dealers at three daily intervals. It outlines the procedure for identifying and ignoring outlier yields to calculate a simple average settlement yield, which is then used in a specific formula to determine the final cash settlement price. Additionally, it defines the product design parameters for cash-settled futures on 5-year notional coupon-bearing GoI securities, including trading hours, contract size, and risk management frameworks. This section defines the expiry mechanics, final settlement value calculation, and various margin requirements including init
Text
It has now been decided to permit the introduction of cash settled futures on 2-year and 5-year notional coupon bearing Government of India (GoI) security on currency derivatives segment of Stock Exchanges. Eligible Stock Exchanges may do so after obtaining prior approval from SEBI.
This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
The circular shall come into force from the date of the circular.
Notional coupon bearing 2-year GoI security with a notional coupon of 7% paid semi-annually and face value of ` 100.
The trading hours would be from 9 a.m. to 5.00 p.m.
` 2 lakh.
The futures on notional GoI security would be settled in cash in Indian Rupees. The settlement price of the notional bond would be determined on the basis of the yields of a basket of eligible bond(s) selected by the exchange with the yields of the bonds in the basket to be determined through a polling process carried out by Fixed Income, Money Market and Derivatives Association (FIMMDA).
Exchanges shall disclose upfront to the market participants the composition of the basket of securities for each of the contracts. Eligible bonds would comprise of GoI securities maturing at least 1.5 years but not more than 2.5 years from the expiry day.
The contract value would be: = Quoted price * 2000
The Daily Contract Settlement Value would be: = 2000 * Pw (Here Pw is weighted average futures quote of last half an hour). In the absence of last half an hour trading, theoretical futures price would be considered for computation of Daily Contract Settlement Value. Exchanges would be required to disclose the model/methodology used for arriving at the theoretical price.
The expiry / last trading day for the contract would be the last Thursday of the expiry month. If any expiry day is a trading holiday, then the expiry/ last trading day would be the previous trading day.
The Final Contract Settlement Value would be = 2000 * Pf where Pf is the settlement price of the notional bond.
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Exchange Traded Interest Rate Futures on 2-year and 5-year Notional Coupon Bearing Government of India Security. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.