What changed
In 2011, RBI amended the Interest Rate Futures Directions, 2009 to include 2-year and 5-year notional coupon-bearing government securities as underlying assets. The new contracts were cash-settled, with final settlement price derived from yields of a basket of securities polled per RBI guidelines. These directions have since been superseded.
What it means for you
At the time, banks and lenders gained additional tools to hedge interest rate risk across shorter tenors, improving balance sheet management. The move deepened the derivatives market and aligned with RBI's policy to enhance liquidity and price discovery in the government bond segment. However, current regulations are governed by the 2019 Directions.
What you must do
- Note that the 2011 amendment has been superseded; refer to Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019 for current rules.
- If applicable, review historical context but ensure compliance with current RBI and SEBI guidelines.
Who it affects
Historical market participants dealing in Interest Rate Futures (2011 context), Banks and primary dealers (historically), Treasury departments of financial institutions (historically), Stock exchanges offering IRF contracts (historically)
What were the key features of the new 2-year and 5-year IRF contracts in 2011?
They were cash-settled, based on notional coupon-bearing government securities with a 7% coupon (semi-annual compounding). Final settlement price used yields from a basket of securities polled per RBI guidelines. These contracts are now superseded by the 2019 Directions.
How did this amendment affect existing IRF contracts?
It expanded the product suite beyond the earlier 91-day T-bill and 10-year bond contracts, offering more tenors for hedging. The 2009 Directions remained in force as amended, but have since been superseded.
Who set the guidelines for yield polling and settlement?
RBI issued guidelines for yield polling, while SEBI specified the basket of securities underlying each contract. Stock exchanges implemented the settlement process. Current guidelines are under the 2019 Directions.