The Reserve Bank of India will soon introduce cash-settled interest rate futures on 10-year government bonds and has also permitted exchanges to launch these derivatives in other smaller tenure securities in the future.
The RBI has twice attempted to launch the interest rate futures (IRFs), in 2003 and 2009, but both attempts failed largely due to what participants called faulty product design.
The central bank has permitted exchanges to offer both physical and cash settled IRFs on the notional 10-year government securities. The RBI stated in a notification that the physically settled 10-year IRF would have a semi-annual coupon rate of 7 percent.
The cash-settled 10-year derivative would be based on either a 10-year government bond with residual maturity between 9 and 10 years, or a basket of 10-year bonds that have residual maturity of between 9 to 11 years.
The RBI has twice attempted to launch the interest rate futures (IRFs), in 2003 and 2009, but both attempts failed largely due to what participants called faulty product design.
The central bank has permitted exchanges to offer both physical and cash settled IRFs on the notional 10-year government securities. The RBI stated in a notification that the physically settled 10-year IRF would have a semi-annual coupon rate of 7 percent.
The cash-settled 10-year derivative would be based on either a 10-year government bond with residual maturity between 9 and 10 years, or a basket of 10-year bonds that have residual maturity of between 9 to 11 years.
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