The Metropolitan Stock Exchange (MSE) has become the first bourse to get a regulatory approval to launch weekly interest rate futures (IRF) contracts. MSE received the final go-ahead from the Securities and Exchange Board of India (SEBI) on Thursday.
Currently, both the National Stock Exchange (NSE) and the BSE offer trading facilities in such instruments but the contracts have a monthly tenor.
Giving details about the development Mr. Ajit Singh, VP & Head Branches – Business Development said, “The Indian fixed income market market now has the ability to hedge market risk exposure from short term policy moves, most importantly, ones such as RBI policy rate decisions without having to deploy month long futures positions which would have other dynamics at play.”
He added that “Weekly IRFs would have weekly convergences to interest rates. Hence short term speculative spread trading on interest rate futures, especially during periods of rate volatility, should logically commence and create a new, potentially highly profitable avenue of income for markeg participants.”
“The presence of weekly IRFs will span the market and complete it, creating more avenues for hedging and speculation than those that exist with monthly IRFs, while providing intermediate tenor continuity within the month, thereby enhancing the effectiveness of the monthly IRF market. It is a win win instrument which will actually help grow the monthly IRF market, and will not cannibalize it.”
INTEREST RATE FUTURES: THE JOURNEY SO FAR
Simply put, IRFs are futures contracts wherein the underlying financial instrument pays interest. In the Indian market, exchange traded IRFs are based on 6-year, 10-year and 13-year government bonds and 91-day government treasury bills.
Interest rate futures have been in the market for many years but are yet to register a significant trading presence. On NSE, the daily trading turnover has been in the range of ₹600 crore and ₹1,800 crore on most days in January.
On BSE, the daily turnover in the IRF segment has been between ₹200 crore and ₹500 crore in January. MSE has also got SEBI approval to launch weekly futures and options contracts on cross currency pairs.
ABOUT METROPOLITAN STOCK EXCHANGE (MSE):
The Metropolitan Stock Exchange is one of India’s eight stock exchanges recognised by the Securities and Exchange Board of India. It offers an electronic platform for trading in capital market, futures and options, currency derivatives, Interest Rate Futures and Debt Market segments.
