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Our Bureau

New Delhi, Sept. 2 Exchange-traded interest rate futures (ETIRF) will be a reality in the Indian market by December 2008 or latest by January next year, a top SEBI official said here today.

“We had it (ETIRF) some years back. It did not take off. Now we are trying to make it flexible. A recent report on interest rate futures had recommended that banks, financial institutions and also FIIs be allowed in this market,” Dr T.C. Nair, SEBI Wholetime Member, said after releasing an Assocham report on ‘Hedge Funds’.

An interest rate futures is a futures contract with an interest bearing instrument, like a 10-year Government paper, as an underlying asset. National Stock Exchange (NSE) had introduced ETIRF in 2003, but it did not attract critical mass of participants and transactions, with no trading thereafter, due to variety of reasons.

For the introduction of ETIRF under a new framework, SEBI and RBI are now working in the same manner as was done for exchange traded currency futures, which was launched last week by the Union Finance Minister, Mr P. Chidambaram, at NSE.

“There are two committees looking at interest rate futures. One from RBI and the other from SEBI are working out the nitty-gritty of ETIRF. RBI technical committee has already submitted its report. From SEBI’s side, we will be ready with the operational norms (like quantum of margin etc) and put it on our Web site next month. The RBI as the regulator of the money market, credit market and Government securities market will decide on the policy aspects of ETIRF,” he said.

FIIs have not been allowed to participate in the recently introduced exchange – traded currency futures market. Dr Nair felt that the Government and the RBI will consider allowing all players in this market as and when it stabilises.

An RBI technical committee had recently suggested waiver of securities transaction tax (STT) for trades in ETIRF. It had also recommended that exchanges may consider introducing contracts based on 2-year, 5-year and 30-year Government securities, or those of any other maturities, or coupons.

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