16
1
2
Interest Rate Futures – Definition
• An Interest Rate Futures contract is "an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today."
• The debt instrument or the underlying security for NSE Bond Futures is either a single Government Bond or T-Bill or basket of securities.
• NSE Bond Futures II on NSE are standardized contracts based on a single GOI security and these will be cash settled.
3
Interest Rate Futures
• New guidelines
– On 10-Year Government of India (GoI) security
– Cash settled
– Two different designs are permitted
• Option A : Futures based on single GoI security
• Options B : Futures based on basket of GoI securities
– Stock Exchanges can choose either or both
• Exchange Proposal
– IRF based on single GoI security
• FV Rs. 100
• Semi annual coupon
• Maturity between 9 to 10 years
– Underlying to be decided in consultation with FIMMDA
• Typically the liquid ‘on the run’ bond
– Available in existing Currency Derivatives Segment (IRF Module)
4
Contract Specifications
Underlying Government of India Securities with maturity between 9-10 year
8.83% GOI 2023 (Maturity – November 25, 2023)
7.16% GOI 2023 (Maturity – May 20, 2023)
Market Type N
Symbol The symbol shall denote coupon, type of bond and Maturity Year. For example 8.83%
Central Government Security having maturity on November 25, 2023 shall be
denoted as 883GS2023
Instrument Type FUTIRC
Unit of Trading 1 Lot
(1 lot is equal to 2000 bonds with notional bonds of FV Rs.2 lacs)
Quotation Price based (derived from underlying Clean Price)
Contract Value 1 Contract shall be equal to Quoted price * 2000
Tick Size Rs.0.0025
Quantity Freeze 1251 lots
5
Contract Specifications
Trading Hours Monday to Friday: 9:00 a.m. to 5:00 p.m.
(The trading hours shall be aligned with underlying market in case of market extension)
Contract Trading
Cycle
Three serial monthly contracts
Expiry Day Last Thursday of the Month. In case the last Thursday is a trading holiday, the previous
trading day shall be the expiry / last trading day
Base Price Theoretical price of the 1st day of the contract.
On all other days, Daily Settlement Price of the contract
Price operating range +/- 3% of the base price. (Whenever a trade in any contract is executed at the
highest/lowest price of the band, Exchange may expand the price band for that
contract by 0.5% in that direction after 30 minutes after taking into account market
trend. Price band may be relaxed only 2 times during the day)
Exchange Level
Overall Position Limit
Rs.25,000 crores or 25% of the outstanding of underlying bond whichever is higher.
6
Contract Specifications
Initial Margin SPAN Based Margin (Min 1.5% )
Extreme loss margin 0.5% of the value of the gross open positions
Daily Settlement Daily MTM settlement on T+1 in cash based on daily settlement price
Daily Settlement Price Volume Weighted Average Futures Price of last half an hour or Theoretical Price
Final Settlement Final settlement on T+1 day in cash based on final settlement price
Final Settlement Price Weighted average price of the underlying bond based on the prices during the last
two hours of the trading on NDS-OM. If less than 5 trades are executed in the
underlying bond during the last two hours of trading, then FIMMDA price shall be
used for final settlement
Spread Trading Facility for spread trading. Margin Rs. 800 for one month spread and Rs.1200 for
two months .
7
Membership
• The members registered by SEBI for trading in Currency/Equity Derivative
Segment shall be eligible to trade in Interest Rate Derivatives
• Net-worth: Trading member Rs.1 Crore; Clearing member Rs.10 Crores
• No additional documentation and charges for CDS member
• Separate certification for dealer – NISM module IV (Exemption from SEBI)
• Type of membership
– Only trading member
– Trading cum self clearing member
– Trading and clearing member
– Professional clearing member
8
How to Trade
• Get Connected
– NEAT Plus
– NOW
– CTCL
NOW website NEAT Plus
9
Trading System
• Market Information
– Trade ticker
– Market Watch
• Best buy/ sell order price and contracts
• Last Traded Price & yield
• Open Interest
– Market by price
– Outstanding orders
– Previous trades
– End of day prices
– Underlying price information
– Futures price calculator (price and yield)
10
Clearing and Settlement
Sr. Day / time Activity
1 9 am – 5 pm Trading
2 Till 5:30 pm Trade modification & Give-up approval for CPtrades
3 6:30 pm onwards
Reports from NSCCL
- Trade reports
- Margin reports
- Position reports
- Collateral break-up reports
- Pay-in / Pay-out reports
4 T+1 day 8.30 am Daily MTM pay-in / pay-out
5 Expiry +1 day Final settlement pay-in / pay-out
6 Till T+5 day Client margin reporting
11
Risk Management – Margins
• On line, real time and upfront
• Portfolio based
• VaR at 99% confidence level
• Client level margins
• Initial Margin
– Margins calculated using SPAN Margin. (Min 1.5%)
• Extreme Loss Margin
– 0.5% of the value of the gross open positions (Subject to SEBI Approval)
12
Risk Management – Monitoring
• Clearing Member sets limits for its Trading Member
– Online monitoring & Alerts
– Initial margin – trading member and clearing member
– Extreme loss margin – clearing member
• Automatic disablement
– Breach of capital adequacy
– Trading and Clearing Member
• Close out open positions
– Only to reduce open positions
– Market price orders
– IOC orders
• Client Margin Reporting
– Client-wise margin provided at the end of the day
– Members to report margin collected from clients by T+5 day
13
Position Limits
• Trading Members
– Greater of 10% of OI or INR 600 crores
– Real time alerts
• Clients
– Greater of 3% of OI or INR 200 crores
– End of day monitoring
• FII
– Greater of 10% of OI or INR 600 crores .
– The total gross short (sold) position of each FII in IRF shall not exceed its long position in the government securities and in Interest Rate Futures, at any point in time. The total gross long (bought) position in cash and IRF markets taken together for all FIIs shall not exceed the aggregate permissible limit for investment in government securities for FIIs. FIIs shall ensure compliance with the above limits.
14
• Cash settled futures contract
• Contract based on a single bond
• Easier and cheaper access to rates trading
• Centralized clearing supported by guaranteed settlement
• Useful to all types of investors
• Margins based on actual volatility
• STT not applicable
• SEBI turnover fees
Benefits
15
Theoretical price
• Theoretical Futures Price = Cash price + Financing cost - Income on cash position
Where,
• Cash price of the underlying = Clean price + Accrued interest
• Financing cost = Financing cost for the period on Cash price
• Income on cash position = Accrued interest expected to be received on expiry + Coupon payment + Interest on coupon payment
• The component of coupon payment and interest on coupon payment are applicable in case of any coupon payments falling during the holding period.
16
Thank You
Customer focused
culture
Trust, respect and care
for the individual
Passion for
excellence
TeamworkIntegrity
Contact us on :- [email protected] / 26598305 / 26598246
Market conditions can lead to substantial profit or loss. Investors are advised to seek adequate product and market
knowledge as well as proper investment advice before trading. The material provided here is for general information
purpose only. While care has been taken to ensure accuracy, the information furnished to reader with no warranty as
to accuracy or completeness of its contents and on condition that any changes, omissions or errors shall not be made
the basis for any claim, demand or cause for action.
