TaxTMI 
TaxTMI 
Scheme for introduction of Exchange Traded Interest Rate Derivative Contracts
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....onal Treasury Bill with a maturity of 91 days or three months. SEBI Group on Secondary Market Risk Management (RMG) considered the specification of the initial set of interest rate derivative contracts to be introduced and the risk containment measures to be adopted for such derivative contracts. The recommendations of the RMG were a part of a 'Consultative Document' prepared by the RMG and placed on the SEBI web site for public comments. The recommendations of the RMG as regard the derivative contract and the risk containment measures were also placed before the SEBI Board. The risk containment measures and the scheme for introduction of futures contracts on a Notional Government Security with 10 year maturity (hereinafter referred to as a Long Bond Future) and a Notional Treasury Bill (hereinafter referred to as a Notional T-Bill Futures) are as follows- I) PRODUCT SPECIFICATION 1) The Interest Rate Derivative Contracts to be traded on the derivative exchange/segment and settled through the Clearing house/corporation of the Exchange (herein after collectively referred to as Exchange) shall h....
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....data. ii) The computation algorithm, including the source code should be fully disclosed to the public and made available on the website of the Exchange, under a GNU General Public License or under any other license that is not more restrictive than the General Public License. This requirement shall also extend to source codes and algorithm in any pre and post processing that may be carried out before or after the actual estimation itself. iii) The Exchange shall make available on the web site a set of at least 25 trading days (i.e. one month) of data suites for the input data. Each day's data suite shall include traded prices and other transaction data that is input into the estimation / pre-processing/post-procession algorithm. iv) The full time-series of yield curve parameters shall be made available on the web site of the Exchange/yield curve provider, for a period extending back atleast to April 1, 1999. v) Major changes in the estimation process shall be implemented after giving due notice to the market and providing the appropriate back tests. vi)&....
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.... (3.5 sigma) and in no case the initial margin shall be less than 2% of the notional value of the Futures Contracts. 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. On the first day of interest rate futures trading, the formula given above would require a value of st-1, i.e. the estimated volatility at the end of the day preceding the first day of interest rate futures trading. This shall be obtained as follows: (a) The standard deviation of returns of the prices of Notional Bonds, priced using the zero coupon yield curve, in the last one year shall be computed. (b) The standard deviation shall be set as the volatility estimate at the beginning of that one year period. (c) Move forward through the year, one day at a time, using the formula above to get the estimated volatility at the end of that day using prices of the Notional bonds computed of that days zero coupon yield curve. (d) The estimated volatility by this method at the end of the day preceding the first day of interest rat....
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....lected /adjusted from the liquid networth of a member on a real time basis. Exposure limits are in addition to the initial margin requirements. Exposure limit for calendar spreads: As prescribed in the case of index futures contract, the Calendar Spread shall be regarded as an open position of one third (1/3rd) 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. D) Real Time Computation Initially, the zero coupon yield curve shall be computed at the end of the day. However, the Exchange / yield curve provider shall endeavour to compute the zero coupon yield curve on a real time basis or at least several times during the course of the day. Margins computed on the basis of the latest available yield curve shall be applied to member/client portfolios on a real time basis. Exchanges may also choose to compute the end of day margins on the basis of a provisional yield curve (for example based only on t+0 trades) because the final end of day yield curve becomes available on....