Mumbai: Capital markets regulator Securities and Exchange Board of India (Sebi) on Thursday approved a proposal by MCX Stock Exchange Ltd (MCX-SX) to introduce interest rate futures (IRF).

The exchange plans to start “live" trading soon. An exchange statement said the regulatory approval to launch the new segment follows the renewal of the exchange’s recognition in September 2013.

“Launch of cash-settled IRF will enable widening of the market and provide a better option for market participants to hedge against volatile interest rates. The product will benefit firms such as banks, brokerage houses, insurance companies and Primary Dealers, who may use these contracts to effectively manage their interest rate risk," it said. While renewing the license of MCX-SX for one year on 11 September, the market regulator had asked the exchange to strengthen corporate governance, an order that came after the payments crisis at its affiliate NSEL, which surfaced at the end of July.

The National Stock Exchange of India Ltd. (NSE) in a press release has announced that it will launch IRFs on 10-year Government of India bonds on 21st January. 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 Reserve Bank of India and Sebi had issued a circular on 5 December permitting exchanges to launch Interest Rate Futures linked to a 10-year single bond and to a basket of securities between nine to 11 years.

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