DOWNLOAD REF. NO. NSE/CMPT/4189
NATIONAL SECURITIES CLEARING CORPORATION LIMITED
FUTURES & OPTIONS SEGMENT
Circular No. NSCC/F&O/C&S/197
Subject: Introduction of
Futures on Interest Rate
In pursuance of Rules and
Regulations of the Futures and Options Segment of NSCCL, and in partial
modification of NSCCL Circular No. NSCCL/F&O/C&S/181/2003 dated
For any further
clarifications members may contact the following officials of the Clearing
Corporation:
NATIONAL SECURITIES CLEARING CORPORATION LIMITED :
Mr. Dinesh Ranade, Mr. Vikram Kothari, Mr Umesh
Bali
Phone Nos.022 26598165, 26598265
Fax No. 022 26598243
For National Securities Clearing Corporation Limited
R Sundararaman
Assistant Vice President
1. SETTLEMENT PROCEDURE
Daily
Mark to Market Settlement and Final settlement for Interest Rate Futures
Contract
1.1 Daily Mark to
Market settlement and Final Mark to Market settlement in respect of admitted
deals in Interest Rate Futures Contracts shall be cash settled by debiting/
crediting of the clearing accounts of Clearing Members with the respective
Clearing Bank.
1.2 All positions (brought
forward, created during the day, closed out during the day) of a F&O
Clearing Member in Futures Contracts, at the close of trading hours on a day,
shall be marked to market at the Daily Settlement Price (for Daily Mark to Market Settlement) and settled.
1.3 All positions (brought
forward, created during the day, closed out during the day) of a F&O
Clearing Member in Futures Contracts, at the close of trading hours on the last
trading day, shall be marked to market at Final
Settlement Price (for Final Settlement) and settled.
1.4 Daily Settlement Price
shall be the closing price of the relevant Futures contract for the Trading
day. However, in the absence of trading for a contract, in the last half an
hour, daily settlement price shall be computed in the manner specified in item
3.1.
1.5 Final settlement price for
an Interest rate Futures Contract shall be based on the value of the notional bond determined
using the zero coupon yield curve computed by National Stock Exchange or by any
other agency as may be nominated in this regard.
1.6 Open positions in a
Futures contract shall cease to exist after its expiration day.
The settlement schedule for Daily Mark
to Market settlement and Final settlement of interest rate futures contracts
will be as detailed below:
Mark to market payin : T+1 working
day on or after
Mark to market payout : T+1 working day on or after
Final
settlement payin : T+1 working day on
or after
Final
settlement payout :
T+1 working day on or after
3. SETTLEMENT PRICE
3.1 Daily Settlement Price for mark to market settlement of interest rate
futures contracts
Daily settlement price for an
Interest Rate Futures Contract shall be the closing price of such Interest Rate
Futures Contract on the trading day. The closing price for an interest rate
futures contract shall be calculated on the basis of the last half an hour
weighted average price of such interest rate futures contract. In absence of
trading in the last half an hour, the theoretical price would be taken or such
other price as may be decided by the relevant authority from time to time.
Theoretical daily settlement price for unexpired
futures contracts, shall be the futures prices
computed using the (price of the notional bond) spot prices arrived at from the
applicable ZCYC Curve. The ZCYC shall be computed by the Exchange or by any
other agency as may be nominated in this regard from the prices of Government
securities traded on the Exchange or reported on the Negotiated Dealing System
of RBI or both taking trades of same day settlement(i.e. t = 0).
In respect of zero coupon notional bond, the price of the bond shall be the present value of
the principal payment discounted using discrete discounting for the specified
period at the respective zero coupon yield. In respect of the notional T-bill,
the settlement price shall be 100 minus the annualized yield for the specified
period computed using the zero coupon yield curve. In respect of coupon bearing
notional bond, the present value shall be obtained as the sum of present value
of the principal payment discounted at the relevant zero coupon yield and the
present values of the coupons obtained by discounting each notional coupon
payment at the relevant zero coupon yield for that maturity. For this purpose the notional coupon payment
date shall be half yearly and commencing from the date of expiry of the
relevant futures contract.
For computation of futures prices from the price of
the notional bond (spot prices) thus arrived, the rate of interest may be the
relevant MIBOR rate or such other rate as may be specified from time to time.
3.2 Final Settlement Price for mark to market settlement of interest rate
futures contracts
Final settlement price for an
Interest rate Futures Contract on zero coupon notional bond and coupon bearing
bond shall be based on the price of the notional bond
determined using the zero coupon yield curve computed as explained above. In
respect of notional T-bill it shall be 100 minus the annualised
yield for the specified period computed using the zero coupon yield curve.
3.3 Settlement value in respect of notional T-bill
Since the T-bills are priced at 100 minus the relevant annualised yield, the settlement value shall be arrived at
using the relevant multiplier factor. Currently it shall be 91/365
4. MARGINS
4.1 Initial Margins
Initial margin shall be payable on all open
positions of Clearing Members, upto client level, at any point of time, and
shall be payable upfront by Clearing Members in accordance with the margin
computation mechanism and/ or system as may be adopted by Clearing Corporation
from time to time. Presently, the initial margins would be based on the zero
coupon yield curve computed at the end of the day as explained above with
trades of same day settlement (t =0). However, in case of large deviation
between the yields generated using only t = 0 trades and all trades, initial
margins revised accordingly may be computed and collected by the Clearing
corporation from the members at its discretion.
Initial Margin shall include
SPAN margins and such other additional margins, that may be specified by Clearing
Corporation from time to time.
4.2 Computation of Initial Margin
Clearing Corporation will
adopt SPAN (Standard Portfolio Analysis of Risk) system or any other system for
the purpose of real time initial margin computation.
Initial margin requirements
shall be based on 99% value at risk over a one day time horizon. Provided,
however, in the case of futures contracts, where it may not be possible to
collect mark to market settlement value, before the commencement of trading on
the next day, the initial margin may be
computed over a two day time horizon, applying the appropriate statistical
formula.
The methodology for
computation of Value at Risk percentage will be as per the recommendations of
SEBI from time to time.
Initial margin requirement for
a member:
a. For client positions -
shall be netted at the level of individual client and grossed across all
clients, at the Trading/ Clearing Member level, without any setoffs between
clients.
b. For proprietary
positions - shall be netted at Trading/ Clearing Member level without any set offs
between client and proprietary positions.
For this purpose, various
parameters shall be as specified hereunder or such other parameters as may be
specified by the relevant authority from time to time:
4.2.1 Price scan range
In the case of Notional Bond Futures, the price
scan range shall be 3.5 Standard Deviation (3.5 sigma) and in no case the
initial margin shall be less than 2% of the notional value of the Futures
Contracts, which shall be scaled up by look ahead period as may be specified
from time to time. For Notional T-Bill Futures, the price scan range shall be
3.5 Standard Deviation (3.5 sigma) and in no case the initial margin shall be
less than 0.2% of the notional value of the futures contract, which shall be
scaled up by look ahead period as may be specified from time to time.
4.2.2 Calendar Spread Charge
The margin on calendar spread
shall be calculated at a flat rate of 0.125% per month of spread on the far
month contract subject to a minimum margin of 0.25% and a maximum margin of
0.75% on the far side of the spread with legs upto 1
year apart.
A Calendar spread positions
will be treated as non-spread (naked) positions in the far month contract, 3
trading days prior to expiration of the near month contract.
4.3 Exposure Limits (2nd line of defense)
Clearing Members shall be
subject to Exposure limits in addition to initial margins. Exposure Limit shall
be 100 times the liquid net worth i.e. 1% of the notional value of the gross
open positions in Notional 10 year bond futures (both coupon bearing and zero coupon) and shall be 1000 times the liquid net worth i.e.
0.1% of the gross open positions in notional 91 day T-Bill futures.
Exposure limit for calendar
spreads: the Calendar spread shall be regarded as an open position of one third
of the mark to market value of the far month contract. As the near month contract approaches expiry,
the spread shall be treated as a naked position in the far month contract three
days prior to the expiry of the near month contract
4.4 Trading Member wise/ Custodial Participant wise Position Limit
Each Trading Member/ Custodial
Participant shall ensure that his clients do not exceed the specified position
limit. The position limits shall be at the client level and for near month
contracts and shall be 15% of the open interest or Rs.
100 crores, whichever is higher.
For futures contracts open
interest shall be equivalent to the open positions in that futures contract
multiplied by its last available closing price.