Description

BSE introduces Interest Rate Futures and Options contracts on 6.48% GOI security maturing October 06, 2035, with detailed trading parameters and specifications.

Summary

BSE has introduced Interest Rate Derivatives (IRD) contracts - both Futures (FUTIRD) and Options (OPTIRD) - on the underlying Government of India security with 6.48% coupon maturing on October 06, 2035. The contracts are designated with symbol 648GS2035 and provide cash-settled derivative instruments for interest rate risk management.

Key Points

  • Contract Symbol: 648GS2035 (Trading), 648GSEC2035 (Spot market feeds from CCIL NDS)
  • Underlying: 6.48% GOI security maturing October 06, 2035
  • Trading Hours: 9:00 AM to 5:00 PM (aligned with NDS-OM platform)
  • Contract Size: 1 contract = 2,000 bonds × INR 100 face value = INR 200,000
  • Tick Size: 0.0025 (Futures), INR 0.0025 (Options premium)
  • Contract Cycle: Three serial monthly contracts + three quarterly contracts
  • Expiry: Last Thursday of expiry month
  • Settlement: Cash settled in INR on T+1 day
  • Maximum Quantity Limit: 1,250 contracts per order
  • Price Bands: Initial 3% of previous closing price, expandable by 0.5% twice daily

Contract Specifications

Interest Rate Futures

  • Quotation: In terms of Face Value
  • Contract Value: Quoted Price × 2,000
  • Spread Contracts: Calendar spread facility available across monthly and quarterly contracts
  • Day Count Convention: 360-day year with 30-day months and half-yearly coupon payments
  • Daily Close Price: Volume weighted average futures price of last half-hour trades (Pw × 2,000)
  • Final Settlement: Based on weighted average price of underlying GOI security during last two hours on NDS-OM (2,000 × Pf); if less than 5 trades, FIMMDA price used

Interest Rate Options

  • Unit of Trading: One contract = 2,000 units (Face Value INR 2 Lakhs)
  • Option Type: European Call and Put Options
  • Premium: Quoted in INR with 4 decimal precision
  • Contract Cycle: Three serial monthly + three quarterly contracts (March/June/September/December cycle)
  • Strike Prices: Eight In-the-money strikes
  • Style: European (exercise at expiry only)

Regulatory Framework

  • Position limits governed by SEBI Circular SEBI/HO/MRD/CIR/P/2019/103
  • Daily settlement value computation follows SEBI circular SEBI/HO/MRD/DRMNP/CIR/P/2018/27
  • SEBI in consultation with RBI may halt trading during extreme volatility
  • Trade modification and give-up allowed until 5:30 PM

Compliance Requirements

  • Market participants must adhere to position limits as prescribed by SEBI
  • Orders exceeding 1,250 quantity will be rejected
  • Settlement obligations must be met on T+1 basis
  • Margin requirements include Initial Margin and Extreme Loss Margin for options

Important Dates

  • Trading Commencement: As per BSE notification
  • Expiry Schedule: Last Thursday of each contract month
  • Settlement: T+1 day for all contracts

Impact Assessment

Market Impact

  • Provides institutional investors and market participants with additional tools for hedging interest rate risk exposure
  • Enhances liquidity and price discovery in government securities market
  • Offers arbitrage opportunities between cash and derivatives markets

Operational Impact

  • Market participants can now hedge long-term interest rate exposure (10+ year maturity)
  • Calendar spread trading enables term structure arbitrage strategies
  • Cash settlement mechanism reduces operational complexity compared to physical delivery
  • Integration with CCIL NDS platform ensures seamless reference pricing

Trading Considerations

  • Price bands and quantity limits designed to manage volatility
  • Use of FIMMDA pricing as fallback ensures fair settlement even during low liquidity
  • European-style options provide simpler risk management compared to American-style

Impact Justification

Introduction of new derivative instruments on government securities expands market participants' hedging and trading options but has limited direct impact on equity markets