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NSE launches interest rate option on govt bonds

Interest rate options are based on the underlying GOI 10-year bonds — the 7.26 per cent 2029 bond and the 6.45 per cent 2029 bond. The unit of trading is Rs 2 lakh face value of GOI securities, corresponding to 2000 units.

By: ENS Economic Bureau | Mumbai | December 10, 2019 1:13:13 am
National Stock Exchange (NSE), interest rate government bonds, stocks and shares, latest news, indian express National Stock Exchange (NSE)

The National Stock Exchange (NSE) Monday launched interest rate options on 10-year Government of India (GOI) bonds. “The first day of launch witnessed turnover of 5,926 contracts. Participation was observed from more than 50 trading members,” the NSE said.

Vikram Limaye, MD and CEO, NSE, said, “By launching interest rate options, we have added one more instrument to the fixed income derivatives asset class. Interest rate options will provide institutional investors the ability to manage risk through a non-linear product which is otherwise not available to them. Market participants can use options to trade and hedge interest rate risk on a transparent platform.”

“With different categories of investors being allowed to participate from day one such as banks, primary dealers, foreign portfolio investors, corporates etc, we hope to bring the same depth, breadth and efficiency that other asset classes have to this product,” Limaye said.

Interest rate options are based on the underlying GOI 10-year bonds — the 7.26 per cent 2029 bond and the 6.45 per cent 2029 bond. The unit of trading is Rs 2 lakh face value of GOI securities, corresponding to 2000 units.

“The order quotation is the premium quoted as the price of GOI security and the tick size is Rs 0.0025. The options contracts available are European Call and Put Options with minimum 8 in-the-money, 8 out-of-the-money and 1 near-the-money strike prices and a strike interval of Rs 0.25,” the NSE said.

“The contracts will be available for 3 serial monthly contracts followed by 3 quarterly contracts of the cycle March/June/September/December. The contract expiry is on the last Thursday of the expiry month and will be cash settled,” it added.

Currently, interest rate futures are available on 7 GOI bonds as the underlying, for residual maturity ranging from 4 years to 15 years. The contracts are available for 3 serial months followed by 3 quarterly contracts of the cycle March/June/September/December. The contract expiry is on the last Thursday of the expiry month and will be cash settled.

An average daily turnover of around Rs 1,480 crore is observed in the current financial year on the NSE, it said.

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