NSE says bullish on interest rate futures

The National Stock Exchange, which is in the process of introducing interest rate futures (IRF) next week, expects the product to gain traction among investors because of its simple structure.
"For the product to be pouplar, it should be able to relate with investors. We are sure this product will be able to relate more as it is been based on single security," NSE vice-president Kashinath Katakhond told reporters today.
IRFs were launched twice earlier but failed to pick up because of their complex structure.
However, he refused to predict the volume in IRF trades.
The NSE bond futures which will be launched on January 21, will be based on the 10-year government bonds, with underlying 7.16 per cent and 8.83 per cent coupon rate.

The product will be cash-settled and will be traded in the currency segment.

It will benefit market participants to hedge risks, balance portfolios, do view-based trading and use different trading strategies to manage interest rate risk.
Major players in the IRF segment would be banks, primary dealers, FIIs, mutual fund, insurance companies and high net worth individuals.
The permitted lot size will the Rs 2 lakh face value of government securities equivalent to 2,000 units. The trading will take place Monday to Friday between 0900hrs and 1700 hrs.
Katakhond said position limit for a client will be 3 per cent of total open interest or Rs 200 crore whichever is higher. Position limit for a trading member or for FII it will be 10 per cent of the total open interest or Rs 600 crore, whichever is higher, he said.

Another exchange MCX-SX will launch IRF trade on the 10-year government security on January 20 while BSE is planning to commence trades on January 28.