Interest Rate Futures trading begins on MCX-SX

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Live trading in Interest rate futures (IRF) in government bonds that is settled in cash begins on MCX-SX or Multi-Commodity Exchange Ltd. after approval from the capital market regulator, Sebi, today. The trading in such instruments is likely to take off on other exchanges, including National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) from January 21, 2014 and January 28, 2014 respectively.

Interest rate futures contract is a contractual obligation between the traders in the contract ( buyer and seller) for the delivery of the interest-bearing investment instrument, including government bonds, in future time. Such instruments shall enable market participants to hedge risk due to changes in interest rate in a better way. Launched on a pilot basis as per the Sebi, the product is to be introduced as monthly contracts with a maximum maturity term of 3 months time.

Market participants that includes currency derivatives segment members as well as their users are allowed to trade in IRF contracts on the MCX-SX. The derivative instrument shall also benefit other market participants; including, insurance companies, primary dealers, brokerages and banks among others.

Meanwhile, the volume for the 8.33% 10-year benchmark 2023 bond stood the highest at Rs. 1.5 billion. Another government bond instrument that traded on the opening body is the 7.16% bonds maturing in 2023.

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