The Hindu : Business : FIIs may be allowed long position in IRF

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FIIs may be allowed long position in IRF

Special Correspondent

MUMBAI: The Reserve Bank of India Group on Interest Rate Futures (IRF) on Friday recommended that foreign institutional investors (FIIs) may be allowed to take long position in the IRF market, subject to the condition that the total gross exposure in the cash and the IRF market does not exceed the extant maximum permissible cash market exposure limit which is now $4.7 billion.

“They may also be allowed to take short position in IRF only to hedge exposure in the cash market up to the maximum permitted limit which is currently $4.7 billion. The same may also apply to Non-Resident Indians participation in IRF,” the RBI Group stated in its final report.

The group recommended that to begin with, one IRF contract based on a notional, coupon bearing, ten-year Government of India (GoI) security be introduced in the bond futures segment. Depending on the market response and appetite, the exchanges concerned may consider introducing contracts based on two-year, five-year and 30-year GoI securities or those of any other maturities or coupons.

Exemption from STT likely

The group recommended that the existing contract on 91-day Treasury bills futures may be retained but with settlement price based on the yield discovered at the weekly RBI auction. Besides, a contract based on an index of traded/actual call rates may also be considered. Therefore, the group recommended that to begin with, delivery-based, longer term/tenor/maturity short selling in the cash market may be allowed only to banks and PDs. The group recommends that IRF may be exempted from Securities Transaction Tax.

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