RBI issues final guidelines for interest rate futures

The Reserve Bank today issued final guidelines for the 6-year and 13-year cash settled interest rate futures (IRF).
"The final guidelines for introduction of the 6-year and the 13-year cash settled IRF on government securities with residual maturity of 4-8 years and 11-15 years, respectively have been issued," RBI said in a statement.
For the 6-year cash settled IRF contracts, the underlying shall be a coupon bearing government security of face value of Rs 100 and residual maturity between 4 and 8 years on the expiry of futures contract.
Another option for the 6-year IRF is that the underlying shall be coupon bearing notional 6-year government security with a face value of Rs 100.

"For each contract, there shall be a basket of government securities, with residual maturity between 4 and 8 years on the day of expiry of futures contract, with appropriate weight assigned to each security in the basket," RBI said.
For the 13-year cash settled IRF contracts, the underlying can be a coupon bearing government security of face value of Rs 100 and residual maturity between 11 and 15 years on the expiry of futures contract.

"The underlying shall be the coupon bearing notional 13-year government security with a face value of Rs 100. For each contract, there shall be a basket of government securities, with residual maturity between 11 and 15 years on the day of expiry of futures contract, with appropriate weight assigned to each security in the basket," RBI said as the second option for the 13-year cash settled IRF.

Among other requirements for cash settled 6-year, 10-year and 13-year IRF contracts shall cash-settled in the rupees.
The RBI has also expanded the residual maturity for the existing 10-year cash settled IRF from 9-11 years to 8-11 years to "provide market participants greater choice and flexibility to hedge their interest rate risk across different tenors.