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Trading by FIIs and NRIs in Exchange Traded Interest Rate Derivative Contracts

Mar 09, 2004
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Circulars

EXECUTIVE DIRECTOR

DERIVATIVES AND NEW PRODUCT DEPARTMENT

SEBI/DNPD/Cir-21/2004/03/09

March 9, 2004

 

To,

The Managing Director / Executive Director

of Derivative Segment of NSE & BSE

and their Clearing House / Corporation.

 

Dear Sir,

 

Sub:- Trading by FIIs and NRIs in Exchange Traded Interest Rate Derivative Contracts

 

This circular is being issued in exercise of powers conferred by section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with section 10 of the Securities Contracts(regulation) Act 1956, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

This circular is in continuation with SEBI circular No. SMD/DC/Cir-11/02 dated February 12, 2002 and circular No. SEBI/DNPD/Cir-17/2003/10/29 dated October 29, 2003 issued to Derivative Exchange / Segment and their Clearing House / Corporation (hereinafter collectively referred to as Exchange).

The SEBI Advisory Committee on Derivatives and Market Risk Management (RMG), in its meeting held on June 26, 2003, recommended FII position limits for exchange traded interest rate derivative contracts. The SEBI Board, in its meeting held on July 24, 2003, approved the recommendations of the RMG and mandated that these measures could be implemented by SEBI at an appropriate time.

RBI, vide Circular No. EC.Co.FII/347/11.01.01(22)/2003-04 dated July 11, 2003 permitted FIIs to participate in exchange traded interest rate derivative contracts and specified position limits for FII transactions in exchange traded interest rate derivatives.

Further, RBI vide circular A.P.(DIR Series) Circular No.13, dated September 1, 2003 has specified that FIIs & NRIs may trade in all exchange traded derivative contracts approved by SEBI from time to time subject to the limits prescribed by SEBI. Accordingly the position limits for FIIs, their sub-accounts and NRIs in exchange traded interest rate derivative contracts shall be as under:

     
  1. POSITION LIMITS

    2.  

At the level of the FII

 

The notional value of gross open position of a FII in exchange traded interest rate derivative contracts shall be :-

 

  1.  
    1.  
      1. USD 100 million.

        2.  

      2. In addition to the above, the FII may take exposure in exchange traded in interest rate derivative contracts to the extent of the book value of their cash market exposure in Government Securities. 

 

 At the level of the sub-account

 

The position limits for FII sub-accounts shall be the same as the client level position limits specified for exchange traded interest rate derivatives. Therefore, the position limits for a sub-account in near month exchange traded interest rate derivative contracts shall be higher of :

  •  

       

    • Rs. 100 Cr

                 or

  •  
    • 15% of total open interest in the market in exchange traded interest rate derivative contracts.

      •  

 At the level of the NRI

 The position limits for NRIs shall be the same as the client level position limits specified for exchange traded interest rate derivatives. Therefore, the NRI position limits in near month exchange traded interest rate derivative contracts shall be higher of : 

  •  
    • Rs. 100 Cr

      •  

              or 

  •  
    • 15% of total open interest in the market in exchange traded interest rate derivative contracts.

      •   

  1. MONITORING OF POSITION LIMITS


    The Exchange shall monitor the FII and sub-account position limits in exchange traded interest rate derivative contracts in a manner similar to that specified in SEBI circular No. SMD/DC/Cir-11/02 dated February 12, 2002.

In addition, the Exchange shall adopt the following procedure for monitoring the FII position limits in exchange traded interest rate derivative contracts:

     

  1. The FII shall report to the Clearing Member the book value of its exposure in Government Securities.

    2.  

  2. The Clearing Member in turn shall report the same to the Exchange.

    3.  

  3. The Exchange shall then monitor the FII position limits in exchange traded interest rate derivative contracts in the manner specified by SEBI for equity derivative contracts.

    4.  

The Exchange shall monitor the NRI position limits in exchange traded interest rate derivative contracts in a manner similar to that specified in SEBI circular No. SEBI/DNPD/Cir-17/2003/10/29 dated October 29, 2003.

 

Yours sincerely,

PRATIP KAR