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Futures contracts on the corporate bond index permitted by SEBI

Published on January 12, 2023
Current Context: To increase liquidity in the bond market and give investors a chance to hedge their holdings, the Securities and Exchange Board of India (SEBI) approved the launch of future contracts on corporate bond indexes of corporate debt securities graded AA+ and above.
Futures contracts on the corporate bond index permitted by SEBI
  • Corporate Bond Index Futures (CBIF):
    • Stock exchanges offering such contracts must submit a thorough request for SEBI's approval.
    • Exchanges must also update any applicable bylaws, rules, and regulations.
    • There should be at least eight issuers in the index, and no one issuer or group of issuers should account for more than 15% of the index's weight.
    • Contract value: At the time of introduction, the CBIF contracts' value should not be less than Rs 2 lakhs.
    • Contract tenure: Stock exchanges may offer contracts with a maximum term of three years.
    • A Corporate Bond Index Future is a financial contract that allows investors to speculate on or hedge against changes in the value of a specific corporate bond index. The contract is based on the underlying index, a basket of corporate bonds with specific characteristics, such as credit rating or maturity date. The value of the contract changes as the value of the underlying bonds in the index change.
    • A futures contract is a legally binding agreement to buy or sell a specific asset, such as a commodity, currency, or index, at a predetermined price on a specified date in the future.
  • Portfolio Managers' Norms modified by SEBI:
    • In accordance with the terms of the contracts signed with the client for early termination, SEBI also permitted portfolio managers working under the co-investment Portfolio Management Services (PMS) to end their employment.
    • The Portfolio Manager should verify that the second clause of PMS Regulation 22 (2), which establishes standards for early contract termination, is followed for the clients covered by the co-investment PMS.
    • Previously, before making any changes, the portfolio manager was required to notify its investors with SEBI's prior consent.

Question: 

Q.1 Who approved the launch of future contracts on corporate bond indexes of corporate debt securities?
a. SIDBI
b. CSIR
c. RBI
d. SEBI
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