Interest Rate Futures, which was inaugurated on the National Stock Exchange (NSE) on Monday, recorded 1,475 trades resulting in a total of 14,559 contracts valued at Rs. 267.31 crore. "Overall volume was better than anticipated and about half a dozen banks participated," said a dealer who preferred anonymity. "Bid/offer was very narrow as low as half-a-paise," he said, adding that the Primary Dealers (PDs) did not participate for want of clarity on the regulatory aspects.
Standard Chartered Bank, a foreign bank, traded one contract at Rs. 94.50 for a notional amount of Rs. 2 lakh. “The addition of interest rate futures enhances Standard Chartered Bank’s suite of risk management products and services, which are customised to suit our proprietary business requirements and risks management capabilities,” said Hemant Mishr, Regional Head, Financial Markets, India & South Asia, Standard Chartered Bank.
An interest rate future is a contract to buy or sell a debt instrument (ten-year government bond bearing a notional interest rate of 7 per cent payable half-yearly) at a price decided in advance for delivery at a future date. By locking into a price, the contract helps eliminate the interest rate risk. The transaction takes place via the stock exchange, which ensures delivery. The tradable lot size is Rs. 2 lakh.
Earlier in the day, while giving the keynote address at the launch function on the NSE, Union Finance Secretary Ashok Chawla said “the product was re-launched with re-designed parameters; banks are allowed to trade and FIIs can participate”. Interest rate futures was earlier launched in 2003, but the experience was not satisfactory.
Noting that the Currency Futures, which was launched one year back, was a success at present with a volume of $2 billion daily, Mr. Chawla hoped that interest rate futures would be a huge success, as this product was used widely internationally.
Meanwhile NSE stated that market participants’ responded enthusiastically to the product launch. Out of the two quarterly contracts available for trading, December 2009 was the most active with 13,789 contracts being traded. The bid-ask spread was observed to be around one tick, that is, quarter paisa most of the time.
About 638 members have registered for this new product out of which 21 are banks. “Trading activity was observed from all parts of the country,” NSE stated in a release. The first trade executed by a member was by East India Securities and by banks was by Standard Chartered Bank. The contribution by banks in the total volume was 32.48 per cent. Among banks, Union Bank of India was the most active bank.
State Bank of India was the first public sector bank to trade.
Central Bank of India executed the single largest trade. In the domestic private bank category, HDFC Bank executed the first trade. Bank of America, IDBI Bank and Axis Bank also actively participated.
