Exchange Traded Cash Settled Interest Rate Futures (IRF) on 10-Year Government of India Security
Summary
SEBI permits stock exchanges to introduce cash-settled Interest Rate Futures on 10-Year Government of India Securities following consultation with the RBI. The circular outlines specific product specifications, including two underlying options, contract sizes, trading hours, and settlement mechanisms for these pilot contracts. It also mandates pre-launch approval from SEBI and establishes position limits, price bands, and risk management frameworks for market participants.
Text
it has been decided to permit stock exchanges to introduce cash settled Interest Rate Futures on 10-Year Government of India Security.
Two different designs (Option-A: Coupon bearing Government of India security as underlying and Option-B: Coupon bearing notional 10-year Government of India security with settlement price based on basket of Securities as underlying) are permitted for cash settled futures on 10-year GoI Secuirty.
The cash settled 10-year IRF is being introduced on a pilot basis and the product features would be reviewed based on the experience gained.
Before the launch of the product, the Stock Exchange/Clearing Corporation shall submit the proposal to SEBI for approval giving the details of contract specifications, risk management framework, the safeguards and the risk protection mechanisms, the surveillance systems etc.
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.
GoI security of face value Rs 100 with semi-annual coupon and residual maturity between 9 and 10 years on the day of expiry of IRF contract, as decided by stock exchanges in consultation with FIMMDA.
Notional coupon bearing 10-year GoI security with a notional coupon paid semi-annually and face value of Rs 100. For each contract, there shall be basket of Government of India Securities, with residual maturity between 9 and 11 years on the day of expiry of IRF contract, with appropriate weight assigned to each security in the basket.
Exchanges shall disclose the criteria for selection of the underlying bond/s in both options of cash settled Interest Rate Futures on 10 –Year Government of India security.
9 a.m. to 5.00 p.m. on all working days from Monday to Friday. Exchanges shall align the trading hours of IRF with that of underlying market in case of change of trading hours of underlying NDS-OM platform.
Each futures contract shall represent 2000 underlying bonds of total face value of INR 2,00,000/-.
The Daily Contract Settlement Value shall be: = Pw*2000 (Here Pw is volume weighted average futures price of last half an hour). In the absence of last half an hour trading, theoretical futures price shall be considered for computation of Daily Contract Settlement Value.
Exchanges shall be required to disclose the model/methodology used for arriving at the theoretical price.
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Source: SecMarx — Exchange Traded Cash Settled Interest Rate Futures (IRF) on 10-Year Government of India Security. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.