SEBI Allows Exchange Traded Interest Rate Futures
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.
Size of the contract
The quotation would be similar to the quoted price of the GoI security.
Tenor of the contract
The maximum maturity of the contract would be 12 months.
To begin with, three serial monthly contracts can be introduced.
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
Daily Contract Settlement Value
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.
Expiry/Last trading day
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.
Final Contract Settlement Value
The Final Contract Settlement Value would be = 2000 * Pf where Pf is the settlement price of the notional bond.
The Initial Margin requirement shall be based on a worst case loss of a portfolio of an individual client across various scenarios of price changes. The various scenarios of price changes would be so computed so as to cover a 99% VaR over a one day horizon. In order to achieve this, the price scan range may initially be fixed at 3.5 standard deviation. The initial margin so computed would be subject to a minimum of 0.35 % of the notional value of the contract on the first day of trading in Futures on 2 Year Notional Coupon Bearing Government of India (GoI) Security and 0.3 % of the notional value of the contract thereafter. The initial margin shall be deducted from the liquid net worth of the clearing member on an online, real time basis.
Extreme Loss margin
Extreme loss margin of 0.1 % of the notional value of the contract for all gross open positions shall be deducted from the liquid assets of the clearing member on an on line, real time basis.
Calendar spread margin
2 Year Notional Coupon Bearing Government of India (GoI) Security futures position at one maturity hedged by an offsetting 2 Year Notional Coupon Bearing Government of India (GoI) Security futures position at a different maturity would be treated as a calendar spread. The calendar spread margin shall be at a value of 300 for spread of one month and 450 for spread of two months. The benefit for a calendar spread would continue till expiry of the near month contract.
i. Client level: The gross open positions of the client across all contracts should not exceed 6% of the total open interest or Rs 300 crores whichever is higher. The Exchange will disseminate alerts whenever the gross open position of the client exceeds 3% of the total open interest at the end of the previous day’s trade.
ii. Trading Member level: The gross open positions of the trading member across all contracts should not exceed 15% of the total open interest or Rs. 1000 crores whichever is higher.
iii. Clearing Member level: No separate position limit is prescribed at the level of clearing member. However, the clearing member shall ensure that his own trading position and the positions of each trading member clearing through him is within the limits specified above.
iv. FIIs: In case of Foreign Institutional Investors registered with Securities and Exchange Board of India the total gross long (bought) position in cash and Interest Rate Futures markets taken together should not exceed their individual permissible limit for investment in government securities and the total gross short (sold) position, for the purpose of hedging only, should not exceed their long position in the government securities and in Interest Rate Futures, at any point in time.