Markets regulator Sebi on Thursday revised the position limits for interest rate derivatives falling in the 8-11 years maturity bucket.
The decision to review the position limit has been taken after consulting stock exchanges, the Securities and Exchange Board of India (Sebi) said in a circular.
Sebi said position limits for the 8-11 year maturity bucket would be 10 per cent of open interest or Rs 1,200 crore, whichever is higher, for trading members, banks, primary dealers, insurance companies, pension funds and housing finance companies.
Besides, the same position limits will be applicable to mutual funds (AMC level) and category I and II foreign portfolio investment (other than individuals, family offices and companies).
For scheme-level mutual fund and category II FPIs, which include individuals, family offices and companies, the position limit has been pegged at 3 per cent of open interest or Rs 400 crore, whichever is higher, it added.
The position limits for the 4-8 years and 11-15 years maturity bucket remain unchanged.
Position limits for the two maturity buckets are 10 per cent of open interest or Rs 600 crore whichever is higher, for trading members, banks, primary dealers, insurance companies, pension funds and housing finance companies, mutual funds (AMC level) and category I and II FPIs (other than individuals, family offices and companies)
This position limit for scheme-level mutual fund and non-institutions in category II FPIs, is 3 per cent of open interest or Rs 200 crore, whichever is higher.
Derivative in financial markets typically refers to a forward, future, option or any other hybrid contract of pre-determined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or to an index of securities.
Interest rate derivatives can be categorised into interest rate futures and interest rate options.
Interest rate future is a contract between a buyer and a seller agreeing to the future delivery of any interest-bearing asset such as government bonds, while interest rate option gives the holder a right to receive an interest payment based on a variable interest rate.
Position limit refers to the highest number of derivative contracts a trader can own. They are aimed at preventing any investing entity from having undue control over the market.