The Hindu Business Line : MCX SX applies for SEBI nod to launch interest rate futures

Mumbai, June 27 MCX Stock Exchange (MCX SX), promoted by Financial Technologies, has approached the Securities Exchange Board of India (SEBI) for approval to launch trading in interest rate futures. Currently,, the exchange, which provides a platform for trading in currency futures, logs an average daily turnover of Rs 3,500 crore.

Mr Joseph Massey, Managing Director and Chief Executive Officer, MCX SX, said: “We are very eager to launch interest rate futures on our exchange and have sought permission from SEBI.”

Trading in rate futures will help banks, insurance firms and even households guard against volatility in interest rates.

Though banks and institutional investors will be comfortable to trade on the exchange platform, the biggest challenge would be to involve retail investors (through a mutual fund scheme), said Mr Massey.

Launching rate

On June 18, the committee set up by financial market regulators — the Reserve Bank of India and SEBI — approved the launch of interest rate futures on stock exchanges on benchmark 10-year government bonds. The notional coupon on the 10-year government security for rate future contracts would be 7 per cent, with a semi-annual compounding.

The trading hours would be from 9 a.m. to 5 p.m. between Monday and Friday. The contract size has been fixed at Rs 2 lakh and the contracts would mature in 12 months.

There would be four fixed quarterly contracts expiring in March, June, September and December.

The RBI-SEBI panel also indicated that it would consider launching futures based on 91-day treasury bills, but ruled out futures based on the overnight rate.

Second coming

Incidentally, it is a second coming for the rate futures on the stock exchange platform. In 2003, the NSE had introduced interest rate futures contracts that were priced off a zero coupon yield curve, which was not well received by market participants.

Besides, the RBI did not allow banks to take trading positions in interest rate futures, although they could in the over-the-trade interest rate swap market. “Banks were allowed to only use the futures market to hedge interest rate risk in the ‘held for trading’ and ‘available for sale’ categories of their investment portfolios,” said a debt market dealer.

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