Sebi allows stock exchanges to launch future contracts on corporate bond indices

New Delhi: In order to enhance liquidity in the bond market and to provide opportunity to the investors to hedge their positions, Sebi on Tuesday allowed stock exchanges to launch future contracts on corporate bond indices.

The index should composed of corporate debt securities, constituents of the index should have adequate liquidity and diversification at issuer level and the constituents of the index should be periodically reviewed, Sebi said in a circular.

Further, single issuer should not have more than 15 per cent weight in the index, there should be at least 8 issuers in the index, and the index should not have more than 25 per cent weight in a particular group of issuers (excluding securities issued by public sector undertakings, public financial institutions and public sector banks).

"The value of the Cash Settled Corporate Bond Index Futures (CBIF) contracts shall not be less than Rs 2 lakh at the time of introduction," Sebi said.

The stock exchanges may introduce contracts of up to a tenure of three years.

For every CBIF, stock exchanges will set an initial price band at 5 per cent of the previous closing price or base price thus preventing acceptance of orders for execution that are placed beyond the set band.

The trading hours should be between 9:00 AM and 5:00 PM on all working days from Monday to Friday.

The stock exchanges desirous of introducing such contracts will have to submit a detailed proposal to Sebi for approval, providing details relating to underlying corporate bond index, the index methodology, contract specifications, applicable trading, clearing & settlement mechanism, risk management framework, the safeguards to ensure market integrity, investor protection and surveillance systems.