Description

BSE introduces Interest Rate Futures and Options contracts on 6.48% Government of India Security maturing on October 06, 2035.

Summary

BSE has introduced Interest Rate Derivatives (IRD) contracts on the underlying Government of India Security with 6.48% coupon maturing on October 06, 2035. The product suite includes both Interest Rate Futures (FUTIRD) and Interest Rate Options (OPTIRD) with symbol 648GS2035. These cash-settled contracts are designed for hedging and trading interest rate risks.

Key Points

  • Contract Symbol: 648GS2035 for both futures and options
  • Underlying: 6.48% GOI Security maturing October 06, 2035
  • Contract Unit: 1 contract = 2000 bonds × INR 100 face value = INR 200,000
  • Trading Hours: 9:00 AM to 5:00 PM (aligned with NDS-OM platform)
  • Quotation: In terms of Face Value; tick size of 0.0025
  • Settlement: Cash settled in INR on T+1 day
  • Contract Cycle: Three serial monthly contracts followed by three quarterly contracts
  • Expiry: Last Thursday of the expiry month
  • Maximum Quantity Limit: 1250 contracts per order

Product Specifications

Interest Rate Futures

  • Price Bands: Initial 3% of previous closing price, expandable by 0.5% up to twice daily
  • Daily Close Price: Volume weighted average of last half hour trades × 2000
  • Final Settlement: Based on weighted average price during last two hours on NDS-OM (minimum 5 trades required, otherwise FIMMDA price used)
  • Calendar Spreads: Available across monthly and quarterly contracts
  • Day Count Convention: 360-day year with 12 months of 30 days each

Interest Rate Options

  • Option Type: European Call and Put Options
  • Premium Tick Size: INR 0.0025 (0.25 paisa)
  • Strike Price Structure: Eight In-the-money strikes (contract appears truncated)
  • Contract Cycle: Three serial monthly + three quarterly (March/June/September/December cycle)
  • Exercise: At expiry only (European style)

Regulatory Framework

  • Position limits as per SEBI Circular No. SEBI/HO/MRD/CIR/P/2019/103
  • Daily settlement value computation follows SEBI Circular No. SEBI/HO/MRD/DRMNP/CIR/P/2018/27
  • SEBI in consultation with RBI may halt trading during extreme volatility
  • Initial margin and extreme loss margin requirements apply

Compliance Requirements

  • Market participants must adhere to position limits specified in SEBI circular dated September 2019
  • Orders exceeding 1250 contracts will be rejected by the system
  • Trade modifications and give-ups allowed until 5:30 PM
  • Participants must monitor price bands and adjust trading strategies accordingly

Important Dates

  • Trading Commencement: Effective immediately upon circular issuance
  • Expiry Schedule: Last Thursday of each contract month
  • Settlement: T+1 day for both daily and final settlement
  • Final Settlement Price Calculation: Last two hours of trading on expiry day

Impact Assessment

Market Impact: Medium - This product launch expands the interest rate derivatives market in India, providing additional instruments for portfolio managers, banks, and institutional investors to hedge interest rate risk on long-dated government securities. The 2035 maturity provides exposure to the medium-to-long end of the yield curve.

Operational Impact: Market participants trading government securities and interest rate derivatives will have new hedging and arbitrage opportunities. The alignment with NDS-OM trading hours ensures seamless integration with the existing government securities trading ecosystem.

Liquidity Considerations: Initial liquidity may be limited as market participants familiarize themselves with the new contracts. The availability of both futures and options provides flexibility for different trading strategies.

Impact Justification

Introduction of new derivative products on government securities expands trading opportunities for institutional investors and market participants interested in interest rate hedging, but has limited direct impact on equity markets