Settlement Procedure & Settlement Price

Daily Mark to Market Settlement and Final settlement for Interest Rate Futures Contract

Daily Mark to Market settlement and Final Mark to Market settlement in respect of admitted deals in Interest Rate Futures Contracts shall be cash settled by debiting/ crediting of the clearing accounts of Clearing Members with the respective Clearing Bank.

All positions (brought forward, created during the day, closed out during the day) of a F&O Clearing Member in Futures Contracts, at the close of trading hours on a day, shall be marked to market at the Daily Settlement Price (for Daily Mark to Market Settlement) and settled.

All positions (brought forward, created during the day, closed out during the day) of a F&O Clearing Member in Futures Contracts, at the close of trading hours on the last trading day, shall be marked to market at Final Settlement Price (for Final Settlement) and settled.

Daily Settlement Price shall be the closing price of the relevant Futures contract for the Trading day.

Final settlement price for an Interest rate Futures Contract shall be based on the value of the notional bond determined using the zero coupon yield curve computed by National Stock Exchange or by any other agency as may be nominated in this regard.

Open positions in a Futures contract shall cease to exist after its expiration day.

Daily settlement price for an Interest Rate Futures Contract shall be the closing price of such Interest Rate Futures Contract on the trading day. The closing price for an interest rate futures contract shall be calculated on the basis of the last half an hour weighted average price of such interest rate futures contract. In absence of trading in the last half an hour, the theoretical price would be taken or such other price as may be decided by the relevant authority from time to time.

Theoretical daily settlement price for unexpired futures contracts, shall be the futures prices computed using the (price of the notional bond) spot prices arrived at from the applicable ZCYC Curve. The ZCYC shall be computed by the Exchange or by any other agency as may be nominated in this regard from the prices of Government securities traded on the Exchange or reported on the Negotiated Dealing System of RBI or both taking trades of same day settlement(i.e. t = 0).

In respect of zero coupon notional bond, the price of the bond shall be the present value of the principal payment discounted using discrete discounting for the specified period at the respective zero coupon yield. In respect of the notional T-bill, the settlement price shall be 100 minus the annualized yield for the specified period computed using the zero coupon yield curve. In respect of coupon bearing notional bond, the present value shall be obtained as the sum of present value of the principal payment discounted at the relevant zero coupon yield and the present values of the coupons obtained by discounting each notional coupon payment at the relevant zero coupon yield for that maturity. For this purpose the notional coupon payment date shall be half yearly and commencing from the date of expiry of the relevant futures contract.

For computation of futures prices from the price of the notional bond (spot prices) thus arrived, the rate of interest may be the relevant MIBOR rate or such other rate as may be specified from time to time.

Final settlement price for an Interest rate Futures Contract on zero coupon notional bond and coupon bearing bond shall be based on the price of the notional bond determined using the zero coupon yield curve computed as explained above. In respect of notional T-bill it shall be 100 minus the annualised yield for the specified period computed using the zero coupon yield curve.

Since the T-bills are priced at 100 minus the relevant annualised yield, the settlement value shall be arrived at using the relevant multiplier factor. Currently it shall be 91/365

NSCCL provides a facility to entities like institutions to execute trades through any TM, which may be cleared and settled by their own CM. Such entities are called Custodial Participants (CP).

To avail of this facility, a CP is required to register with NSCCL through his CM, which allots them a unique CP code. The CP and the CM are required to enter into an agreement as per specified format.

Thereafter, all trades executed by such CP through any TM are required to have the CP code in the relevant field on the F&O trading system at the time of order entry. Such trades executed on behalf of a CP are required to be confirmed by their CM (and not the CM of the TM through whom the trade was executed), within the time specified by NSE, using the confirmation facility provided by NSCCL to the CMs in the F&O segment.

Till such time the trade is confirmed by the CM of the CP, the same is considered as a trade of the TM and the responsibility of settlement of such trade vests with the CM of the TM. Once the trades have been confirmed by the CM of the CP, they form part of the obligations of the CM of the CP and they shall be responsible for all obligations arising out of such trades including the payment of margins and settlement of obligations.

FIIs have been permitted to trade in all exchange traded derivative contracts subject to compliance with position limits prescribed for them and their sub-accounts as well compliance with procedure for trading, settlement and reporting as prescribed by the derivative exchange / clearing house / clearing corporation from time to time.

The position limits for FII and their sub-accounts shall be as under:

In the case of index related derivative products, there shall be a position limit of 15% of open interest in all futures and options contracts on a particular underlying index on the Exchange, or Rs. 100 crores, whichever is higher.

For a particular underlying security, the position limit shall be 7.5% of open interest on the Exchange, in all futures and options contracts on a particular underlying security, or Rs. 50 crores, whichever is higher. At the level of the sub-account

A disclosure requirement for any person or persons acting in concert who together own 15% or more of the open interest of all futures and options contracts on a particular underlying index on the Exchange.

The gross open position across all futures and options contracts on a particular underlying security, of a sub-account of an FII, should not exceed the higher of :

1% of the free float market capitalisation (in terms of number of shares)

or

5% of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts). These position limits shall be applicable on the combined position in all futures and options contracts on an underlying security on the Exchange.

The Clearing Corporation would monitor the FII position limits at the end of each trading day. For this purpose, the following procedure is prescribed:

FIIs intending to trade in the F&O segment of the Exchange shall be required to notify the following details of the Clearing Member/s, who shall clear and settle their trades in the F&O segment, to Clearing Corporation.

1. Name of FII

2. SEBI Registration Number

3. Name of sub-account/s of FII (if any

4. Name of the Clearing Member/s

A unique code will be allotted by Clearing Corporation to each such FII prior to commencement of trading by them. This will be utilized by Clearing Corporation for the purpose of monitoring position limits at the level of the FII.

For e.g. If the name of FII is say XYZ and it has 2 sub accounts viz. scheme 1 and 2, the FII code allotted by NSCCL may be "XYZ" (comprising 12 characters).

Each FII/ sub-account of the FII, as the case may be, intending to trade in the F&O segment of the Exchange, shall further be required to obtain a unique Custodial Participant (CP) code allotted from the Clearing Corporation, through their Clearing Member. CP code normally comprises of 12 alphanumeric characters. Clearing Corporation will allot CP codes to each such FII/ sub-account of the FII.

The Clearing Member/s of the FII/ sub-account of the FII, are required to furnish the following details to Clearing Corporation, to obtain CP codes

1. Name of FII

2. Unique code allotted to the FII by NSCCL (as detailed in 2 above)

3. Name of sub-account/s of FII

4. CP code/s allotted to the FII/ sub account/s of the FII, in the Capital Market segment of Clearing Corporation

Eg. In the example given in 2 above the CP codes allotted by NSCCL may be ABCDEFGH0001 and ABCDEFGH0002.

FIIs/ sub accounts of FIIs which have been allotted a unique CP code by Clearing Corporation shall only be permitted to trade on the Exchange

The FII/ sub-account of FII shall ensure that all orders placed by them on the Exchange carry the relevant CP code allotted by Clearing Corporation as specified in point 3 above, in the relevant field in NEATFO.

Clearing Member/s of the FII shall submit the details of all the trades confirmed by FII to Clearing Corporation, by the end of each trading day, as per the mechanism specified.

Clearing Corporation will monitor the open positions of the FII/ sub-account of the FII for each underlying security and index on which futures and option contracts are traded on the Exchange, against the position limits specified at the level of FII/ sub-accounts of FII respectively, at the end of each trading day.

The cumulative FII position may be disclosed to the market on a T + 1 basis, before the commencement of trading on the next day.

In the event of an FII breaching the position limits on any underlying, Clearing Corporation will advise the Exchange to withdraw the facility granted to such FII to take any fresh positions in any derivative contracts. Such FII will be required to reduce their open position in such underlying, in accordance with the mechanism provided by Clearing Corporation from time to time. The facility withdrawn may be reinstated upon due compliance of the position limits.

It shall also be obligatory on FIIs to report any breach of position limits by them / their sub-account/s, to Clearing Corporation and ensure that such sub-account/s does not take any fresh positions in any derivative contracts in such underlying. The sub-account of FII shall be required to reduce open position in such underlying, in accordance with the mechanism specified by Clearing Corporation. Only upon due compliance of the position limits, the sub-accounts may permitted to take further positions.

The position limits would be computed on a gross basis at the level of a FII and on a net basis at the level of sub-accounts and proprietary positions

The open position for all derivative contracts would be valued as the open interest multiplied with the closing price of the respective underlying in the cash market.