The Hindu : Trading in interest rate futures allowed

Online edition of India's National Newspaper
Wednesday, Jun 04, 2003

Business

Business

Trading in interest rate futures allowed

By Our Special Correspondent

MUMBAI JUNE 3. The Reserve Bank of India today issued guidelines to participants on exchange traded interest rate derivatives. The guidelines enable scheduled commercial banks (SCBs), excluding regional rural banks and local area banks, primary dealers (PDs) and specified all India financial institutions (AIFIs), to transact in interest rate derivatives on the Indian exchanges.

In the first phase, these entities are permitted to transact in interest rate futures for hedging the interest rate risk in their underlying government securities portfolio.

The RBI is concurrently permitting SCBs, PDs and AIFIs to seek membership of the Futures and Options (F&O) segment of the stock exchanges for the limited purpose of undertaking proprietary transactions for hedging interest rate risk.

Those not seeking membership of stock exchanges can transact through approved F&O members of the exchanges.

As trading members of the F&O segment, SCBs, PDs and AIFIs would have to settle their derivatives trades directly with the clearing corporation/clearing house, according to a release issued here today by the RBI.

Other participants would settle proprietary trades as participant clearing members or through approved professional/custodial clearing members.

In the next phase, the RBI would consider the possibilities of expanding the scope of hedging to other items of the balance sheet as also permit select entities having adequate capital and appropriate risk management systems to hold trading positions.

The RBI will hold discussions with market participants at a later stage to review the current guidelines and move to the next phase.

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