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Sebi allows interest rate futures in 6,13 years govt bonds

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New Delhi: Capital markets regulator Sebi today allowed stock exchanges to introduce cash settled interest rate futures (IRFs) on six-year and 13-year government securities, in addition to 10-year bonds already traded in the market. The decision was taken in consultation with Reserve Bank of India after taking into account feedback from market participants and exchanges.

“It has been decided to permit stock exchanges to introduce cash settled IRFs on 6 year and 13 year government of India security,” Securities and Exchange Board of India (Sebi) said in a circular.

The capital market watchdog has already permitted exchanges to launch cash settled IRFs on 10-year government bond in December, 2013. An IRF is a contract between a buyer and a seller agreeing to the future delivery of any interest-bearing asset such as government bonds.


The exchanges are allowed to launch contracts on either one or both of these options. Before the launch of the product, the stock exchange is required to submit the proposal to Sebi for approval giving the details of contract specifications, risk management framework, the safeguards and the risk protection mechanisms and the surveillance systems, among others.

Trading would be done between 9 am and 5 pm on all working days from Monday to Friday. Sebi said three serial monthly contracts followed by maximum three additional quarterly contracts of March, June, September and December cycle would be available. This would be applicable for 10-year government bonds as well.

For FPI (111) category, the regulator said that gross open positions across all contracts within the respective maturity bucket would not exceed three per cent of the total open interest in the respective maturity bucket or Rs 200 crore, whichever is higher.However, in case of pension funds, insurance firms and housing finance companies, it should be at 10 per cent or Rs 600 crore.

“The total gross short (sold) position of each FPI in IRF shall not exceed its long position in the government securities and in IRFs, at any point in time. “The total gross long (bought) position in cash and IRF markets taken together for all FPIs shall not exceed the aggregate permissible limit for investment in government securities for FPIs,” Sebi noted.

Sebi would take stringent action against FPI in case of violation of the limits. At any exchange, overall open interest on IRF contracts on each underlying would not exceed 25 per cent of the outstanding of underlying bond.