Leading stock exchanges BSE and NSE will introduce a new interest rate futures (IRF)contract tomorrow with the newly launched 10-year government bond maturing in 2025 as its underlying.
Interest Rates Futures contract based on 7.72 per cent central government security maturing on May 25, 2025, will be made available for trading from May 29, 2015, the exchanges said in separate circulars.
An IRF contract is "an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today."
The cash-settled IRFs provide market participants with option to hedge risks arising from fluctuations in interest rates, which depend on various factors, including RBI policy, demand for liquidity and flow of overseas funds.
The IRF market gets participation from retail, trading houses, FIIs and other institutions.
At present, 2024 maturity bond of 8.4 per cent government of India security is traded on the exchanges.
At present, daily average trading volume in IRF is around Rs 2,500 crore with around 2.5 lakh contracts outstanding on the NSE.
