In order to enhance liquidity in the bond markets, SEBI on 9th January, 2023, issued a circular allowing exchanges to introduce futures contracts on the Corporate bond indices which are rated AA+ and above.
Here are some of the key highlights:
Permitted Corporate Bond Index:
- There shall be at least 8 corporate debt issuers with a maximum weightage of 15% per single issuer in the index.
- The Index shall not have more than 25% weight in a particular group of issuers[excluding securities issued by (PSUs), Public Financial Institutions (PFIs) and Public Sector Banks (PSBs)]
- The Index shall not have more than 25% weight in a particular sector (excluding securities issued by PSUs, PFIs and PSBs)
The value of the Corporate Bond Index Futures (CBIF) contracts shall not be less than Rs. 2 lakhs at the time of introduction.
Tenure of the Contracts:
Exchanges may introduce contracts with tenure up to 3 years
Weekly, three serial monthly contracts one quarterly contract of the cycle March/June/September/December or one half yearly contract of the cycle June/December
- The trading hours shall be between 9:00 AM and 5:00 PM on all working days from Monday to Friday.
Quotation and Tick Value:
- The quotation shall be in Indian Rupee. The Tick value shall be decided by the stock exchanges based on the underlying index values or contract size etc.
- The contracts shall be settled in Indian Rupees on the next working day of the expiry (T+1)
- For every CBIF, stock exchanges shall set an initial price band at 5% of the previous closing price or base price thus preventing acceptance of orders for execution that are placed beyond the set band. Whenever a trade in any contract is executed at the highest or lowest price of the band, stock exchanges may expand the price band for that contract by 0.5% in that direction after 30 minutes after taking into account market trend.However, no more than 2 expansions in the price band shall be allowed within a day
- The daily settlement price shall be the last half an hour volume weighted average price of the contract.
- The final settlement price shall be the closing price of the underlying index on the expiry day, which shall be the last Thursday of the expiry cycle.