MSE gets nod for weekly interest rate contracts

Players can now hedge short-term risk

The Metropolitan Stock Exchange (MSE) has become the first bourse to get a regulatory approval to launch weekly interest rate futures (IRF) contracts.

MSE received the final go-ahead from the Securities and Exchange Board of India (SEBI) on Thursday. The Hindu has seen a copy of the SEBI approval letter.

Monthly versus weekly

Currently, both the National Stock Exchange (NSE) and the BSE offer trading facilities in such instruments but the contracts have a monthly tenor.

It is expected that weekly contracts would give market players an avenue to hedge their risk exposure in the short term, especially during events such as central bank policy reviews, growth data releases and certain global events that can have a bearing on the interest rates in the domestic market.

Also, during periods of extreme volatility, a section of market participants would want to bet on a shorter term movement instead of a month-long contract.

Simply put, IRFs are futures contracts wherein the underlying financial instrument pays interest. In the Indian market, exchange traded IRFs are based on 6-year, 10-year and 13-year government bonds and 91-day government treasury bills.

Interest rate futures have been in the market for many years but are yet to register a significant trading presence. On NSE, the daily trading turnover has been in the range of ₹600 crore and ₹1,800 crore on most days in January.

On BSE, the daily turnover in the IRF segment has been between ₹200 crore and ₹500 crore in January. MSE has also got SEBI approval to launch weekly futures and options contracts on cross currency pairs.