March 9, 2004


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:

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 :-

USD 100 million.
n 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

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