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India to Launch Interest-Rate Futures

India will introduce exchange-traded interest-rate futures to provide a mechanism to institutions and households to hedge their interest-rate risks.

The contract will have 10-year government bond with a 7% semiannual compounding notional coupon rate as the underlying security, the Reserve Bank of India and the Securities and Exchange Board of India said in a joint report on interest-rate futures.

The size of a single contract will be 200,000 rupees ($4,196) and the maximum maturity of the contract will be 12 months, it said.

The contracts will be traded on the currency derivatives segment of a recognized stock exchange, the report said.

The contract cycle will consist of four fixed quarterly contracts expiring in March, June, September and December.

The gross open positions of a client across all contracts shouldn't exceed 6% of the total open interest or 3 billion rupees, whichever is higher. For a trading member, the gross open position shouldn't exceed 15% of the total open interest or 10 billion rupees, whichever is higher.

Interest-rate futures will allow market participants a system to gauge the effectiveness of different positions and strategies for managing their risks, the report said.

Also, the system will provide transparency and eliminate counter-party risks by ensuring the guarantee of a clearing house, it said.

Source: WSJ

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