The deliverable grade instruments will be government securities maturing at 7.5 years, but not more than 15 years from first day of the delivery month, which has a minimum total outstanding of Rs 10,000 crore. The technical committee has identified 19 government bonds that satisfy the above criteria for the purpose of delivery. The product will have four fixed-quarterly contracts for the entire year ending March, June, September and December.
NSE will commence trade on interest rate futures with a maximum 12-month expiration cycle having quarterly contracts available for trading. However, to begin with, the exchange will make available December 2009 and March 2010 contracts for trading.
The permitted lot size for the futures contract is Rs 2 lakh face value of government securities equivalent to 2,000 units. Participants will be allowed to place a single order with the contract size not exceeding 500 lots.
However, in case the order size exceeds 500 lots, the members will have to confirm to the exchange that there is no inadvertent error and the order entry is genuine. On such confirmation the exchange may approve such orders, stated NSE in a circular issued on Tuesday.
The contract will be available for trading from Monday to Friday from 9 am to 5 pm. The members registered with Sebi for trading in currency or equity derivative segment shall be allowed to trade in interest rate derivatives.
This will be the first exchange traded financial derivative contracts in India that would be physically settled. NSE has already started conducting test market since August 24 to make trading members familiar with the new product, besides conducting road shows and seminars across the country.
The key feature of the instrument is that the participant who has sold interest rate futures contract in an expiring contract holds the right to decide when to initiate delivery. This means the holder who had bought futures contract and has not squared off or carried forward their outstanding positions to the next contract cycle will have to take delivery as intimated by the exchange during any day of the delivery month.
The seller who wants to initiate delivery will have to intimate the stock exchange two business days prior to the actual delivery date.