The Hindu Business Line : Interest rate derivatives trading from April 28

THE Securities and Exchange Board of India has finally set April 28 as the tentative date for the commencement of trading in interest rate derivative contracts on the stock exchanges. Earlier, a SEBI committee had suggested April 21 for the launch.

Initially futures contracts on a notional Government Security with a 10-year maturity and a notional Treasury Bill with a maturity of 91 days or three months shall be introduced, and options contracts shall be introduced later.

The interest rate derivative contracts shall be traded on the derivative segment of the BSE and NSE and would be settled through the clearing corporation of the exchanges, a SEBI statement said on Saturday.

SEBI said the exchanges may introduce futures contract on the notional bonds up to a maturity of one year. The notional underlying could be a zero coupon bond. The final settlement price of the Long Bond Future and the Notional T-bill Future shall be determined using a `zero coupon yield curve'. The `zero coupon yield curve' shall be computed from the prices of government securities traded on the exchanges or reported on the negotiated dealing system of the RBI, or both.

The `zero coupon yield curve' may be computed by the exchange or by any other yield curve provider designated by the exchange, which shall conform to the disclosure standards prescribed by the SEBI Secondary Market Risk Management Group.

The present portfolio-based margining approach applicable to equity derivative contracts shall also apply to interest rate derivative contracts. The detailed risk containment measures for the interest rate derivatives would be as prescribed by the SEBI Secondary Market Risk Management Group. The positions limits are specified at the client level, which is Rs 100 crore or 15 per cent of open interest whichever is higher.

The Long Bond Futures and Notional T-Bill Futures shall initially be cash settled with minimum contract size of an interest rate derivative contract shall not be less than Rs 2 lakh at the time of its launch. SEBI statement said the exchanges, however, have to obtain prior approval of market regulator for the introduction of trading of the contracts on the exchange.

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