by NR INDRAN / INT

The interest rate futures on the T 91 day bills, which were launched by the National Stock Exchange today, were received well by the market.

The product was announced by the RBI in their monetary policy on April 20, 2010. Subsequently, circulars were issued by SEBI and RBI on the product design and risk management framework. The product was launched based on guidelines issued by RBI and SEBI to encourage participation in the product.

During the day, 39,755 contracts with a traded value of Rs 731.24 crores were traded on NSE . Out of the four contracts (three monthly and one quarterly) available for trading, the July expiry contract was the most active with 39,732 contracts being traded. The bid-ask spread was observed to be around one tick i.e. 0.0025 paisa most of the time.

Trading members, including 14 prominent PSU and private banks and corporate clients participated in trading the interest rate futures on T 91 day bills.

The interest rate futures are based on the T 91 day government of India treasury bills, which are money market instruments, used by the government to finance its short term requirements. One contract denotes   face value of Rs 2 lakhs.

The product comes at a time, when interest rates are volatile and can be used effectively by banks, mutual funds, FIIs, corporates and anyone who has  exposure to short term interest rates, to hedge their risk.

The interest rate futures on the T 91 day bills have many advantages: they are cash settled. There is no additional cost of trading this new product, as the existing trading relationship and infrastructure can be used by the investor and member brokers respectively. It’s safe to trade in the product, as there is no counterparty risk, because of centralized clearing and guaranteed settlement by the clearing corporation.

The product is being traded as part of the currency derivative segment.

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