Foreign investors allowed to take fresh positions in IRF

Foreign investors were today allowed to take fresh trading positions in interest rate future (IRF) on the two leading exchanges NSE and BSE.

The two bourses had barred any fresh position in this segment last month after overall foreign investment limit in debt securities breached the 90% threshold.

Consequent to the debt utilisation status of the total investment of foreign investors dropped to about 80% of the permitted limit. The exchanges allowed foreign investors to take further long positions in IRF.

"The debt utilisation status of the total investment of FIIs/FPIs/QFIs has fallen below 90% of the permissible investment limit in debt securities (Rs 99,293 crore as on July 23, 2014 i.e. 79.80% of total permitted limit of Rs 1,24,432 crore)," the exchanges said in similar-worded circulars.

"Accordingly, Foreign Institutional Investors (FIIs)/Foreign Portfolio Investors (FPIs)/Qualified Foreign Investors (QFI)are allowed to take further long positions in IRF," they said.

An IRF is a contract between a buyer and a seller agreeing to the future delivery of interest-bearing assets such as government bonds.

The cash-settled IRFs provides market participants with a better option to hedge risks arising from fluctuations in interest rates, which depend on various factors including RBI policy, demand for liquidity and flow of overseas funds.

Banks, primary dealers, mutual funds, insurance firms, FIIs, corporates and brokers, as well as retail investors can trade in this product.

The decision by exchanges comes a day after market regulator Sebi and Reserve Bank tweaked norms for foreign investor for investing in government securities.

The investment limit for foreign investors in government securities has been increased by $5 billion within the total cap of $30 billion.

The limit has been enhanced by reducing the investment limit for long term investors from $10 billion to $5 billion.