Circular (1703) Launch of Interest Rate

MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department Circular No.
: MCX-SX/CDS/TRD/1703/2014 January 14, 2014
Launch of Cash Settled Interest Rate Futures (IRF) on 10-Year Government of India Security In terms of provisions of the Rules, Bye-Laws and Regulations of the Exchange and in continuation to circular No.: MCX-SX/CDS/TRD/1636/2013 dated December 11, 2013 and on the basis of approval received from SEBI for introducing Exchange traded Cash Settled Interest Rate Futures (IRF) on 10-Year Government of India Security, members of the Exchange are hereby notified as under: The Exchange shall launch Cash Settled Interest Rate Futures (IRF) on 10-Year Government of India Security in the Currency Derivatives Segment with effect from January 20, 2014. Product Description and certain Trading Parameters of the contract are detailed in Annexure 1. The list of contracts currently available for trading in Interest Rate Futures (IRF) on 10-Year Government of India Security is provided in Annexure 2. All Members of Currency Derivatives Segment and their users will be allowed for participation in IRF trading. Members of Equity Derivatives segment will also be eligible to participate after compliance of relevant Membership norms being issued seperately. For any clarifications, contact Customer Service on 022-67319010 / 66494030 (Hunting Lines on both numbers) or send email at customerservice@mcx-sx.com. For and on behalf of MCX Stock Exchange Limited
Ayanansu Panda Vice President
----------------------------------------------- Corporate office -------------------------------------------MCX Stock Exchange Limited 2nd Floor, Exchange Square Suren Road, Chakala, Andheri (East), Mumbai 400 093 Tel.: 022 67319010, Fax: 022 67269578 www.mcx-sx.com email: customerservice@mcx-sx.com
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department Annexure 1 Product Description Symbol Instrument Type Unit of trading 883GS2023 FUTIRF Each futures contract shall represent 2000 underlying bonds of total face value of INR 2,00,000/-. Future contracts based on 8.83% Central Government Security having maturity on November 25, 2023 8.83% Monday to Friday Quoted price * 2000 One Bond of face value ` 100 0.25 paise (or INR 0.0025) Maximum of three serial monthly contracts of maturity of onemonth, two-months and three-months shall be available simultaneously Daily settlement price (DSP) * 2000 Base price for the first day would be theoretical price. On all other days base price would be Daily Settlement Price(DSP) of the contract. DSP shall be calculated on the basis of the last half an hour volume weighted average price of such contract. In the absence of last half an hour trading on the Exchange, theoretical futures price shall be considered for computation of DSP.
716GS2023
Underlying
Future contracts based on 7.16% Central Government Security having maturity on May 20, 2023 7.16%
Coupon Trading hours Contract Value Quotation Tick size Contract trading cycle
9:00 AM to 5.00 PM
Daily Contract Settlement Value Base price/Daily settlement price (DSP)
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department Final Contract Settlement Value Final Settlement price (FSP) Final Settlement price* 2000 Final Settlement price will be arrived at by calculating the weighted average price of the underlying bond based on the prices during the last two hours of the trading on NDS-OM. If less than 5 trades are executed in the underlying bond during the last two hours of trading, then FIMMDA price shall be used for final settlement. The expiry / last trading day for the contract shall be the last Thursday of the expiry month. If any expiry day is a trading holiday/ shut period, then the expiry/ last trading day shall be the previous trading day. The contracts shall expire at the normal market closing time on the expiry day or such other time as decided by Exchange
Expiry/ Last trading day
Daily settlement Final settlement Settlement Mechanism Daily Price Range (DPR)/ Dynamic Price Bands
T+1 T+1 Settlement shall happen in cash in INR 3% of Previous Close/ Base Price Whenever a trade in any contract is executed at the highest/lowest price of the band, the Exchange may expand the DPR/ dynamic price band for that contract by 0.5% in that direction after 30 minutes after taking into account market trend. However, no more than 2 expansions in the price band shall be done within a day. Further, SEBI in consultation with RBI may halt the trading in case of extreme volatility.
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department
Trading Parameters
Order placement : Members shall place orders in terms of number of market lots.
Order type/Order book/Order attribute Regular lot order Stop loss order Immediate or cancel Day Order End of Session Order Spread IOC/ Combination order
Position limits:
Following position limits shall be applicable for IRF contracts: a) Client Level The gross open positions of the client across all contracts shall not exceed 3% of the total open interest or INR 200 crores, whichever is higher. b) Trading Member Level The gross open positions of the trading member across all contracts shall not exceed 10% of the total open interest or INR 600 crores, whichever is higher. c) Clearing Member Level No separate position limit is prescribed at the level of clearing member. However, the clearing member shall ensure that his own trading position and the positions of each trading member clearing through him is within the limits specified above. d) FIIs The gross open positions of the FII across all contracts shall not exceed 10% of the total open interest or INR 600 crores, whichever is higher. The total gross short (sold) position of each FII in IRF shall not exceed its long position in the government securities and in Interest Rate Futures, at any point in time. The total gross long (bought) position in cash and IRF markets taken together for all FIIs shall not exceed the aggregate permissible limit for investment in government securities for FIIs. FIIs shall ensure compliance with the above limits.
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department e) Exchange Level Overall Position Limit: Following limits shall be applicable on overall open interest on derivatives contracts on each underlying per exchange: INR 25,000 crore or 25% of the outstanding of underlying bond whichever is higher.
Position limit violation:

When the open position of any Trading member exceeds the specified position limit at any time, during trading hours, it shall be treated as a violation. In case of violation, the Trading Member of the Exchange may be placed in a square off mode. Additionally penalty shall be levied as per Exchange circular no. MCX-SX/SURV/550/2011 dated April 15, 2011.
Spread Contracts: A facility to enter spread orders through a single order entry window shall be available to members with DAY attribute. Members will be able to place such orders for any available spread combination. Such spread orders shall be matched in the specific spread order book. The salient features of the spread contracts are as follows: A spread contract allows a member to shift / roll over his position from one maturity month to another. For instance, 883SP1214 spread contract allows a member to shift his position from Jan 2014 futures contract to Feb 2014 future contract. 2. Spread contracts allow a member to execute two trades simultaneously, one each in two different maturity contracts of the same underlying, by entering a single order. In other words, by trading in the spread contracts, a member takes two separate positions by entering one order, resulting in two trades, one in near month contract and the other in far month contract. 3. The user can set up the spread contracts on Market Watch screen using portfolio submenu under Tools menu in TWS and MAT. 4. The spread contract symbol will be a combination of the following Maximum of Four characters are the coupon rate of the underlying security/ bond. 5th and 6th character will be the indication of spread contracts The fourth last character will be the near month as specified below The third last character will be the far month as specified below The last two characters will be the year of the far month contract
1.
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department
Character 1 2 3 4 5 6 7 8 9 O N D Example for Symbol
Month January February March April May June July August September October November December
883 SP 1 2 14
Coupon Rate Spread Near Month Far Month Year of Far Month
Buying spread contracts implies selling near month futures and buying far month futures. Similarly, selling spread contracts means buying near month futures contract and selling far month futures contract. A spread order, once executed, results into trades in two corresponding futures contracts. The price of a spread order is quoted as the difference between the prices at which the two contracts will be traded. The spread price may be positive, negative or zero. In respect of the near month contract, the trade is generated at the Last Traded price, while for the far month contract, trade is generated at spread price + last trade price of the near month.
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department Trade price for near month (Leg1) = Last Traded Price of near month Last Traded Price of near month + spread price
Trade price for the far month = (Leg2)
7. Since trades on execution of a spread order automatically result in near month and far month contracts, there will not be any open position, margining or daily net obligation in the spread order book. However, margin and other obligations will be based on the positions in the respective contracts.
Client Code Modification: Trading members will be permitted to modify trades with respect to Client Codes only. The same will be governed and penalty structure for the modifications of client codes of noninstitutional trades shall be as mentioned in the Exchange circular no. MCXSX/ID/629/2011 dated August 26, 2011. Trade Cancellation requests : Requests for trade cancellation, if any, permitted by the Exchange will be allowed on the same trading day during the Normal Market Hours. Market Holidays: In pursuance of Trading Regulations of the Exchange, it is hereby notified that trading holidays for Interest Rate Futures contracts shall be the same as applicable to the Currency Derivatives Segment, unless otherwise specifically notified by the exchange. In addition, trading shall not be permitted in interest rate futures contracts during the shut period of the concerned underlying. Market Timings In pursuance of the Trading Regulations of the Exchange, trading hours for Interest Rate Futures contracts are given below: Normal Trading Hours Trade modification / Trade Cancellation request / Give-up Approval of custodian trades Monday to Friday 9.00 AM. to 5.00 PM Monday to Friday 9:00 AM to 5:30 PM
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department The Exchange may however extend the trading hours of IRF to align with the underlying NDS-OM platform. Unique Client Code (UCC): Before commencing trading on behalf of new clients, UCC details shall be uploaded to the Exchange using My>Exchange in Currency Derivatives Segment. Details of existing clients in Currency Derivatives Segment need not be uploaded again. Trading members may obtain suitable consent from the clients for trading in Interest Rate Futures contracts. In addition to the clients eligible to trade in CDS, Non Resident Indians (NRI) and Foreign Institutional Investors (FII) categories of clients are also allowed to trade in the Interest Rate Futures. The trading members should ensure that the said category of clients trade only in Interest Rate Future contracts and do not trade in Currency Derivative contracts. Alerts for Non registered UCCs Exchange has provided a facility to members in MAT and TWS whereby if UCC information of the client code is not uploaded to the Exchange, members would receive alert upon execution of trade for such client code. Margin Utilization Alerts The Exchange generates on-line alerts at 60%, 75% and 90% of the Margin Utilization in CDS Segment. Such alerts will be available on MAT. On reaching 100%, the member will be placed in a square off mode and all his pending orders will be cancelled. The member will be allowed to square off his existing position and will not be allowed to take fresh positions till the time the Margin utilization is below the threshold level. Debarred entities Information on entities which are debarred by SEBI from accessing the Securities Market through SEBI order will be communicated to members from time to time vide circulars on the Exchange website. Members are advised to keep track of such debarred entities and exercise due diligence to avoid uploading details or entering any order on behalf of such entities. The Exchange identifies debarred entity based on PAN number mentioned in SEBI order and UCC information uploaded by members. In case of debarred entities, the concerned member would be intimated individually through a file available on SFTP. Exchange has implemented a system to restrict placing of orders for the entities identified as debarred. Further, any order or trade modification request for such identified clients would also be rejected by the Exchange and appropriate message will be disseminated to the Member.
MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department Annexure 2 The list of Interest Rate Futures (IRF) on 10-Year Government of India Security: Following three serial monthly contracts for each underlying with maturity of one-month, twomonths and three-months will be available for trading with effect from January 20, 2014: Future contracts for the Underlying 8.83% Central Government Security having maturity on November 25, 2023 Instrument Symbol Expiry Date FUTIRF 883GS2023 30JAN2014 FUTIRF 883GS2023 26FEB2014 FUTIRF 883GS2023 27MAR2014 Future contracts for the Underlying 7.16% Central Government Security having maturity on May 20, 2023 Instrument Symbol Expiry Date FUTIRF 716GS2023 30JAN2014 FUTIRF 716GS2023 26FEB2014 FUTIRF 716GS2023 27MAR2014 Also, three spread contracts for each underlying will be available for trading. Spread contracts for the Underlying 8.83% Central Government Security having maturity on November 25, 2023 Instrument Symbol Description FUTIRF 883SP1214 883GS2023 SPREAD JANFEB 2014 FUTIRF FUTIRF 883SP2314 883SP1314 883GS2023 SPREAD FEBMAR 2014 883GS2023 SPREAD JANMAR 2014
Spread contracts for the Underlying 7.16% Central Government Security having maturity on May 20, 2023 Instrument Symbol Description FUTIRF 716SP1214 716GS2023 SPREAD JANFEB 2014 FUTIRF 716SP2314 716GS2023 SPREAD FEBMAR 2014 FUTIRF 716SP1314 716GS2023 SPREAD JANMAR 2014

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MCX Stock Exchange Limited Currency Derivatives Segment Market Operations - Trading Department Circular No.

: MCX-SX/CDS/TRD/1703/2014 January 14, 2014

Ayanansu Panda Vice President

Daily Contract Settlement Value Base price/Daily settlement price (DSP)

Expiry/ Last trading day

Position limit violation:

Character 1 2 3 4 5 6 7 8 9 O N D Example for Symbol

Trade price for the far month = (Leg2)

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