NSE launches interest rate options on Government of India bonds

NSE

The National Stock Exchange of India (NSE) on December 9 launched interest rate options on 10-year Government of India bonds.

The first day of launch witnessed the turnover of 5,926 contracts and participation was observed from more than 50 trading members, the media release claimed.

"By launching interest rate options, we have added one more instrument to the fixed income derivatives asset class. Interest rate options will provide institutional investors the ability to manage risk through a non-linear product that is otherwise not available to them. Market participants can use options to trade and hedge interest rate risk on a transparent platform," said Vikram Limaye, MD & CEO of NSE.

Interest rate options are based on the underlying Government of India 10-year bonds - the 7.26 percent 2029 bond and the 6.45 percent 2029 bond.

The unit of trading is Rs 2 lakh face value of GOI securities, corresponding to 2,000 units. The order quotation is the premium quoted as the price of GOI security and the tick size is Rs 0.0025.

The options contracts available are European call & put options with minimum 8 in-the-money, 8 out-of-the-money and 1 near-the-money strike prices and a strike interval of Rs 0.25, the press release said.

The contracts will be available for 3 serial monthly contracts followed by 3 quarterly contracts of the cycle March, June, September and December.

The contract expiry is on the last Thursday of the expiry month and will be cash-settled.

Currently, interest rate futures are available on 7 Government of India bonds as the underlying, for residual maturity ranging from 4 years to 15 years.

The contracts are available for 3 serial months followed by 3 quarterly contracts of the cycle and the contract expiry is on the last Thursday of the expiry month and will be cash-settled.

An average daily turnover of around Rs 1,480 crores is observed in the current financial year on NSE.