Description

BSE introduces Interest Rate Futures and Options contracts on the underlying bond 6.48% GOI Maturing on October 06, 2035, with detailed contract specifications and trading parameters.

Summary

BSE has introduced Interest Rate Derivatives contracts (both Futures and Options) on the underlying Government of India security 6.48% maturing on October 06, 2035 (Symbol: 648GS2035). The contracts will be cash-settled in INR with specific trading parameters including contract size of INR 200,000 (2000 bonds x Rs. 100 face value), tick size of 0.0025, and maximum order quantity limit of 1250 contracts.

Key Points

  • Underlying Security: 6.48% GOI bond maturing October 06, 2035
  • Contract Symbol: 648GS2035 (Futures: FUTIRD, Options: OPTIRD)
  • Contract Size: 2000 bonds x Rs. 100 face value = INR 200,000 per contract
  • Trading Hours: 9:00 AM to 5:00 PM (aligned with NDS-OM platform)
  • Contract Cycle: Three serial monthly contracts followed by three quarterly contracts
  • Tick Size: 0.0025 (both futures and options)
  • Maximum Order Quantity: 1250 contracts
  • Settlement: Cash settled on T+1 day
  • Price Bands: Initial 3% of previous closing price, expandable by 0.5% twice per day
  • Options Type: European style Call and Put options
  • Strike Prices: Eight In-the-money strikes available

Regulatory Changes

This circular introduces new derivative products in the Interest Rate Derivatives segment. The contracts are subject to:

  • Position limits as per SEBI Circular No. SEBI/HO/MRD/CIR/P/2019/103
  • Settlement price computation as per SEBI circular no. SEBI/HO/MRD/DRMNP/CIR/P/2018/27
  • SEBI and RBI may halt trading in case of extreme volatility in the IRF market
  • Day count convention: 360-day year with 12 months of 30 days each and half-yearly coupon payments

Compliance Requirements

For Trading Members:

  • Comply with maximum quantity limits (orders exceeding 1250 contracts will be rejected)
  • Adhere to position limits as specified in SEBI circulars
  • Follow trade modification and give-up timings (9:00 AM to 5:30 PM)
  • Ensure clients understand cash settlement mechanism

Settlement Specifications:

  • Daily settlement price calculated using volume weighted average futures price of last half-hour trades
  • Final settlement price based on weighted average price of underlying GOI security during last two hours on NDS-OM
  • If less than 5 trades executed in last two hours, FIMMDA price shall be used for final settlement

Important Dates

  • Expiry Day: Last Thursday of expiry month (if holiday, then previous trading day)
  • Settlement: T+1 day for both daily and final settlement
  • Trading Hours: 9:00 AM to 5:00 PM daily
  • Trade Modification Window: 9:00 AM to 5:30 PM

Impact Assessment

Market Impact:

  • Provides additional hedging and trading opportunities in interest rate derivatives segment
  • Enables price discovery for the 6.48% GOI 2035 security through derivative markets
  • Calendar spread facility allows sophisticated trading strategies across monthly and quarterly contracts
  • Aligned trading hours with NDS-OM platform ensures consistency with underlying bond market

Operational Impact:

  • Trading members need to update systems to handle new contract specifications
  • Risk management systems must incorporate position limits and price band parameters
  • Settlement systems need to accommodate T+1 cash settlement mechanism
  • Market data feeds will include spot market prices from CCIL NDS platform (Symbol: 648GSEC2035)

Investor Impact:

  • Institutional investors and banks gain additional tools for interest rate risk management
  • European-style options provide flexibility for hedging strategies
  • Premium quoted in INR with 4 decimal precision allows fine-grained pricing
  • Position limits ensure orderly market development while preventing excessive concentration

Impact Justification

Introduction of new derivative contracts expands trading opportunities in interest rate derivatives for institutional investors and hedgers but has limited direct impact on equity markets