The regulator has been mulling the launch of derivative instruments on longer tenure bonds so that market participants can place long-term directional bets. Currently, exchange-traded derivative space does now offer any such instrument.
The regulator has fixed the size of the contract at R2 lakh while the maximum maturity of the contract would be 12 months. Further, stocke exchanges have been allowed to introduce three serial monthly contracts.
According to the Sebi circular issued on Friday, the settlement price of the notional bond would be determined on the basis of the yields of a basket of eligible bond(s) selected by the exchange with the yields of the bonds in the basket to be determined through a polling process carried out by Fixed Income, Money Market and Derivatives Association (FIMMDA).
Exchanges will have to disclose upfront to the market participants the composition of the basket of securities for each of the contracts. Eligible bonds would comprise of GoI securities maturing at least 1.5 years but not more than 2.5 years from the expiry day.