Come August, bond investors will find it easy to hedge their investments through interest rate swaps as the Clearing Corporation of India launches an anonymous trading platform for IRS.
In a notification on its website, CCIL said the platform will be available from August 3.
The minimum lot size will be Rs5 crore with tenures from one month to up to 10 years, the notification said. The underlying security for IRS contracts will be government bonds of matching tenure.
“The rate band shall be fixed at 100 bps. A member shall not be allowed to place an order violating the rate band, with the lower and upper band computed with reference to the previous day’s closing rate,” CCIL said.
Interest rate swaps or overnight indexed swaps are derivatives that allow investors to hedge the interest rate risk of their bond investments and also punt on future interest rate movements. IRS in India is a large over-the-counter market and riddled with lack of transparency and illiquidity beyond one-year tenure.
RBI had first allowed banks to participate in the interest rate swap market in 1999 and, since then, the IRS market has been largely dominated by banks.
In March 2014, a sub-committee of the Financial Stability and Development Council headed by R Gandhi, then executive director and now deputy governor at the Reserve Bank of India (RBI), had made detailed recommendations to deepen the derivatives market in the country.
The committee had recommended setting up of a trading platform for IRS, among other measures.