RBI group sets ball rolling for interest rate options

MUMBAI: A Reserve Bank of India ( RBI) working group has recommended simple call and put options, with minimum lot sizes of Rs 2 lakhs to start interest rate options ( IROs) in India.

In a report, the eleven member committee headed by PG Apte has recommended rolling one, two, three, six, nine and twelve month contracts, kicking off with three serial monthly contracts in the first phase.

IROs are derivatives to hedge interest rate risk. Traders expecting rates to rise buy a call option while those expecting rates to fall would buy a put option.

The recommendations does not envisage any documentation for exposures up to Rs 5 crore to encourage large companies to hedge their interest rate risk.

Comments on the recommendations of the group have to be sent to RBI by February 26 and final guidelines will be issued by March end, RBI said.