Mumbai: The National Stock Exchange (NSE) launched trading in interest rates futures on Monday, the latest in a series of steps to deepen the country’s markets, giving participants such as banks and companies a way to hedge against rate risks.
Trading on the NSE began six years after an earlier attempt failed due to faulty benchmarks. The latest attempt comes a year after regulators allowed currency futures trading.
Futures contracts are exchange-traded with an agreement to buy or sell an underlying instrument at a certain date in the future at a specified price.
At least 12,000 March and December contracts, worth about $4.9 million (Rs23.8 crore), were traded in the first three hours on the NSE, the country’s largest exchange. Open interest stood at 2,178.
The December contract closed Monday at Rs91.985 after opening at Rs94.50. The March futures closed at Rs91.2175 from Rs91.11 at the open.
The contracts, each of Rs200,000, are based on 10-year government bonds bearing a notional coupon rate of 7% per annum, compounded every six months.
“The launch of interest rate derivatives means a lot to the NSE, its constituency of brokers and all economic entities who face interest rate risk,” said NSE managing director Ravi Narain.
The contracts will be settled in March, June, September and December. The maximum maturity will be 12 months. Deliverable securities under the futures should mature between 7.5 and 15 years with minimum outstanding of Rs10,000 crore.
Commercial banks can take trading positions for themselves but not on behalf of their clients. Non-resident Indians, companies, primary dealers and foreigners can also trade in this segment. Foreign investors can trade if they have the underlying security, but not for speculative purposes.