InvestorQ : How is the settlement price arrived at for IRF settlement?
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Moii Chavate made post

How is the settlement price arrived at for IRF settlement?

Answer
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Sam Eswaran answered.
2 years ago


NSE Bond Futures II (NBF II)

The daily settlement price (DSP) would be determined in the following manner:

Step 1:

The DSP is the volume weighted average Futures Price (VWAP) of the trades in the last 30 minute of trading.

Step 2:

If the DSP cannot be calculated as above, a theoretical price would be used. Theoretical futures price of the contract is calculated as per the below formula.

Theoretical Future price = Cash price + Financing cost – Income on cash position

where

Cash price = Clean Price + Accrued Interest

Clean price of the security is the weighted average cash price of the respective underlying bond during the last two hours of trading on the NDS Order Matching platform.

If no trades are executed in the underlying bond then, a theoretical price with reference to the FIMMDA rates shall be used. The day count convention for accrued interest shall be on the basis of a 360 days year, consisting of 12 months of 30 days each and half yearly coupon payment. The financing cost and income on cash position shall be computed using the applicable MIBOR on the basis of 365-day year, consisting of 12 months and actual days in the month.

Futures on 91 day T-bill

All the open positions in futures on 91 day GOI T-Bill shall be marked to market on the Daily Settlement Price. The daily settlement price would be determined in the following manner:

100 – 0.25 * Yw

Where Yw (futures yield) shall be volume weighted average futures yield of traded futures contracts in the last 30 minutes of trading subject to there being at least 5 trades. Failing which, trades during the last 60 minutes shall be used for the calculation, subject to at least 5 trades. Failing which, trades during the last 120 minutes shall be used for the calculation, subject to at least 5 trades.

If the daily contract settlement value cannot be calculated as above, a theoretical futures yield would be used for computation. The latest available Treasury Bill benchmark rates published by FIMMDA of various tenors shall be used for computation of theoretical futures yield as follows:

Step – 1

Interpolate / Extrapolate yield for residual maturity (90 plus Days to maturity of contract) period using Treasury Bill benchmark yield curve.

Step – 2

Interpolate / Extrapolate yield for remaining maturity (Maturity of contract minus Today) period using Treasury Bill benchmark yield curve.

Step – 3

Forward yield for 90 days i.e. from remaining maturity of the contract till residual maturity of the contract may be computed using yields calculated in step 1 and 2.

Interpolation and extrapolation in step1 and step2 shall be applicable only when the yield of required tenor is not available on Treasury Bill Yield Curve published by FIMMDA.

Final Settlement

On the expiry of the futures contracts, NSE Clearing marks all positions of a CM to the final settlement price and the resulting profit / loss is settled in cash. The final settlement profit / loss is computed as the difference between trade price and the previous day’s settlement price, as the case may be, and the final settlement price on the last trading day. The settlement shall be netted along with the settlement of other instruments in the Currency Derivatives Segment. Open positions in futures contracts cease to exist after their last trading day / expiry.