What changed
RBI amended its 2009 Interest Rate Futures Directions to include 91-Day Treasury Bills as an underlying asset. The 10-year contract remains physically delivered, while the new T-Bill futures will be cash-settled using the weighted average yield from the weekly auction on expiry.
What it means for you
Banks and other regulated entities now have a new hedging instrument for short-term interest rate exposure. Cash settlement simplifies the process compared to physical delivery, reducing operational complexity. This could increase participation in the interest rate futures market and improve liquidity in the T-Bill segment.
What you must do
- Review your current interest rate risk management framework to incorporate 91-Day T-Bill futures as a hedging tool.
- Ensure compliance with the amended Directions, particularly the cash settlement mechanism and auction-based final settlement price.
- Coordinate with exchanges and depositories to understand the operational aspects of trading and settlement for the new contract.
- Train treasury and risk management teams on the features and pricing of the 91-Day T-Bill futures contract.
Who it affects
All RBI-regulated entities including banks, primary dealers, and financial institutions, Treasury departments managing interest rate risk, Exchanges and clearing corporations offering interest rate futures, Depositories (NSDL, CDSL) and Public Debt Office involved in settlement
What is the settlement method for the 91-Day T-Bill futures?
The contract is cash-settled in Indian Rupees. The final settlement price is based on the weighted average price/yield from the weekly auction of 91-Day Treasury Bills on the contract expiry date.
How does this differ from the existing 10-year Interest Rate Futures?
The 10-year contract is physically delivered using eligible government securities, while the new 91-Day T-Bill futures are cash-settled. The underlying asset is a short-term Treasury Bill instead of a long-term notional bond.
Which entities are eligible to trade these futures?
All RBI-regulated entities, including banks, primary dealers, and other financial institutions, are permitted to trade exchange-traded Interest Rate Futures as per the Directions.