NSE to launch India's first interest rate futures

By SiliconIndia   |   Wednesday, August 26, 2009
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Bangalore: The National Stock Exchange (NSE) is likely to launch India's first interest rate futures on August 31. The exchange had been conducting mock trading for the same for the past two weeks. A NSE spokesperson said, "We are ready with the necessary software and technology and have also received the go-ahead from the Securities and Exchange Board of India (Sebi). Interest rate futures would be launched on August 31." Interest rate futures are contracts to buy or sell a notional 10-year Government of India bond at a particular price. The instruments are mainly expected to find use in corporate houses, mutual funds, foreign institutional investors, brokers and pension funds, besides banks and insurance companies. With this launch, interest rate futures contracts would be available for trade in the currency derivatives segment (CDS) of NSE. Market timings for trading in the same would be from 9 a.m. to 5 p.m. The Bombay Stock Exchange (BSE) and the Financial Technologies group-promoted MCX Stock Exchange (MCX SX) have also applied to Sebi for approval to launch interest rate futures, but they did not say if they have frozen on a date. On Tuesday evening, NSE informed that it would not charge transaction charges for interest rate futures trading contract up to December 31, 2009. This contract will have a total size of Rs.2 lakhs and will be physically settled by delivery of the underlying securities. While NSE will get the first-mover advantage in the interest rate futures segment, its decision to levy no transaction charge on trades up to the end of this calendar year would also stand the exchange in good stead. However, every trading member participating in the segment at any time during the above-mentioned period would be required to make a lump sum contribution of Rs.500 to the Investor Protection Fund. Unlike in the currency derivatives segment, foreign institutional investors (FIIs) and non-resident Indians (NRIs) would be allowed to trade in interest rate futures. Apart from FIIs and NRIs, banks, corporate houses, retailers and high net worth individuals too would be allowed to trade in the segment. A joint technical committee of the Reserve Bank of India and Sebi had recommended in June, allowing interest rate derivatives based on 10-year government bond yields.
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