Interested in interest rate futures? Here's all that you need to know about them:
What are interest rate futures?
An interest rate future is a financial derivative with an interest-bearing instrument as the underlying asset. In India, the underlying is 10-year notional coupon bond bearing Government of India (GoI) security. GoI securities with maturity between seven-and-a-half years and 15 years from the first day of the delivery month are eligible to be used as underlying assets. Also, the minimum outstanding should be Rs 10,000 crore. Exchanges would periodically put out the list of deliverable-grade securities.
Who can trade in them?
Companies, banks, foreign institutional investors (FIIs), non-resident Indians (NRIs) and retail investors.
Where can you trade?
Trading in interest rate futures would go live on NSE from August 31. It can be traded on the currency derivatives segment of the exchange between 9am and 5pm. The contracts would also be traded on the Bombay Stock Exchange (BSE), which is yet to announce the launch date. The newly launched MCX-SX is awaiting regulatory approval to commence trading in the segment. NSE will allow trading between 9 am and 5 pm.
What are the contract size and quotation?
On NSE, the minimum contract size will be Rs 2 lakh. The quotation would be similar to the quoted price of GoI securities with 30/360-day count convention.
What is the maximum tenor of the contract?
The maximum tenor of the contract is 12 months and it will have to be rolled over in three months. So, the contract cycle would be four fixed quarterly contracts for the year-ending March, June, September and December.
How will daily settlement of contracts be done?
For daily settlement, the weighted average price of the futures contract for the last 30 minutes would be considered. In the absence of this trading, the theoretical price, as determined by the exchange, would be considered as daily settlement price.
What will be the mechanism for daily settlement? The daily settlement would be done on a daily mark-to-market mechanism basis and contracts would be physically settled in the delivery month the contract expiry month.
