Markets regulator Sebi today decided to provide flexibility to the stock exchanges with regards to the computation methodology of daily contract settlement value of Interest Rate Futures (IRFs).
The decision has been taken after considering views of all the stakeholders.
An IRF is a contract between a buyer and a seller agreeing to the future delivery of any interest-bearing asset such as government bonds.
The cash-settled IRFs provide market participants an 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.
In a circular, Sebi said it has decided "to provide flexibility to the exchanges with regards the computation methodology of daily contract settlement value of IRFs".
The daily contract settlement value would be calculated based on the volume weighted average futures price of last half an hour.
In the absence of last half an hour trading, theoretical futures price would be considered for computation of daily contract settlement value. For computing theoretical futures price, volume weighted average price of underlying bond in last two hours of trading would be considered.
In case of no trades in the last two hours of trading, Sebi asked exchanges to consider a theoretical price with reference to FIMMDA (fixed income money markets and derivatives association rates) or the volume weighted average price of underlying bond in the entire day.
Further, if there are no trades in the entire day, then the previous days theoretical price would be considered. The same can be considered up to maximum five trading days.
"In case there are no trades for more than five consecutive days, then a theoretical price with reference to FIMMDA rates shall be used," Sebi said.
Sebi has asked exchanges to disclose the methodology used for arriving at the theoretical price.
Disclaimer: No Business Standard Journalist was involved in creation of this content
