New Delhi: The Securities and Exchange Board of India (Sebi) will allow exchange-traded interest rate futures in January. The regulator is also considering launching an exchange-traded corporate bond market in a couple of months, Sebi wholetime member TC Nair said at an Assocham seminar.
“We are looking at an exchange-traded corporate bond market, because there is more transparency and manipulations are not possible,” Nair said. Sebi is in the final stages of putting in place the system.
On interest rate futures, Nair said: “We are on track to launch interest rate futures. It will be launched by January.” Interest rate futures or IRFs would help in moderating the costs of funds besides enabling financial sector entities to hedge their interest rate risk risk.
The Reserve Bank of India said in its mid-term monetary policy review in October that IRF contracts would be launched in early 2009 along with the supporting changes in the regulatory regime.
The plan is to introduce these contracts based on the 10-year government bond yield and would allow foreign institutional investors to take only long positions. The overall limit for foreign investors would be capped at $4.7 billion, RBI had said in its final report on IRFs. India already has Over-the-Counter (OTC) interest rate derivatives, such as Interest rate swaps and forward rate agreements, which are used to hedge interest rate exposure.
The RBI and Sebi have recently favoured moving financial products to an exchange traded platform as it is more transparent and involves clearing agency that minimises the counter-party risk. Sebi’s Nair also hinted at the possibility of a fourth exchange for currency futures in the near future.
“There are some banks and financial institutions which have applied and we are considering their proposal,” he said. At present, BSE, NSE, and MCX have started trading in currency futures. Currently, most trades in the corporate debt market happen through private-placements.
Setting up a bond market, tradeable on exchanges, will help create a liquid market for bonds and it will enable retail investors to participate, he said. The daily trading in the corporate bond market is currently in the range of Rs 300-400 crore a day. The regulator is waiting for state governments to agree on a uniform stamp duty rates for such bonds, he added. The government India has been trying to introduce exchange-traded bonds for three years to enable companies to raise long-term funds for big projects.
