SBI weighs derivatives foray

 Fixed income derivatives are products such as futures and options underlying fixed income instruments which are used to hedge risks arising from adverse exchange rate or interest rate movements.

 While some derivatives have to be traded on the exchanges, called exchange traded derivatives, the rest are one-to-one deals among concerned parties, otherwise referred to as OTC products.

 The bank also proposes to expand the foreign exchange business by undertaking trading positions. At present, it only handles forex deals on behalf of the customers.

 As far as its foray in derivatives is concerned, sources added that although it had earlier done stray deals in interest rate futures, the operations died down as the deals could not get two-way quotes in the market.

 This was because the product in itself was a failure owing to technical hiccups.

 However, the product is being relaunched and the Securities and Exchange Board of India (Sebi) has already approved the market yield-based model for pricing futures s against the earlier proposed zero coupon yield curve.

 This time the bank will start dealing in derivatives in a fresh manner and in a big way, said sources.

 SBI is in the process of setting up the technological framework and strengthening operational skills to start trading by the help of internally formed expert groups.

 The trading interest of the bank was restricted earlier owing to the legal hassles attached to derivatives. This is because there was no legal framework backing the deals.

 However, with the committee on OTC derivatives proposing ISDA agreement to be the legal basis, it has provided the much required comfort for initiating the process.

 The bank