SEBI issues guidelines on exchange-traded interest rate futures

The Securities and Exchange Board of India (SEBI) today issued guidelines to enable recognised stock exchanges, their clearing corporations / clearing houses to trade in interest rate futures.

For trading in interest rate futures, the notional coupon underlying 10-year Government of India security would be 7 per cent with semi-annual compounding.

For starting trading in interest rate futures, the currency derivative segment of a recognised stock exchange has to make an application to the SEBI detailing the derivative product proposed to be introduced and the proposed amendments to the bye-laws of the exchange/ clearing corporation / clearing house.

Product details must include all details in terms of product design, risk management measures and other related issues. SEs must also make sure that the product design, margins, risk management measures and position limits as laid down in the SEBI guidelines are complied with.

Exchanges should select their own basket of securities from the eligible deliverable grade securities, viz, GoI securities maturing at least 7.5 years but not more than 15 years from the first day of the delivery month with a minimum total outstanding stock of Rs10,000 crore. They should disclose upfront to the market participants the composition of the basket of deliverable grade securities and the associated conversion factors for each of the quarterly contracts.

Additions, if any, to these baskets of deliverable grade securities for each of the quarterly contracts should be made not later than 10 business days before the first business day of the delivery month.