FAQ on 91-day Government of India Treasury-Bill (T-
Bill) Futures
Q1. What is the underlying for Futures on 91-day Government of India Treasury-Bill (T- Bill)?
A.Underlying is the 91 - day Government of India Treasury-bill
(T-Bill).
Q2. What are the trading hours for T-Bill Futures?
A.The Trading Hours are from to 5. on all
working days from Monday to Friday and the contract Size is
` 2 lakh.
Q3. What is the quotation of T-Bill Futures?
A.The quotation is similar to the quoted price of the GoI T-Bill
100 minus futures discount yield (i.e. for a yield of 5% the
quote would be 100 - 5=95). The value of 1 basis point
change in the futures discount yield would be ` 5
Q4. What is the maximum maturity for T-Bill Futures contracts?
A.The maximum maturity of the contract is for 12 months.
Q5. What is the contract cycle for T-Bill Futures?
A. The ‘Contract Cycle’ consists of three serial monthly
contracts followed by three quarterly contracts expiring in
March, June, September and December.
Q6. Which is the Expiry/last trading day/Final settlement day of T-Bill Futures contract?
A.The expiry / last trading day / final settlement day for the
contract would be the last Wednesday of the expiry month. If
any expiry day is a trading holiday, then the expiry/ last
trading day/ final settlement day would be the previous
trading day.
Q7. How is the contract value of a T-Bill futures contract  determined?
A.` 2000 * (100 – 0.25 * y)
where y is the futures discount yield.
For example, for a futures discount yield of 5%, the contract
value would be –  2000 * (100 – 0.25*5) = ` 197,500.
Q8. How is daily contract settlement value determined?
A. The ` 2000 * (100 – 0.25 * y w)
(Here y w is weighted average futures yield of last half an
hour).
In the absence of last half an hour trading, theoretical futures
yield would be considered for computation of Daily Contract
Settlement Value.
Q9. What is the settlement mechanism of T-Bill Futures
contract?
A.The 91-day T-Bill future would be settled in cash in Indian
Rupees.
Q10. How is the Final Contract Settlement value 0
determined?
A. ` 2000 * (100 – 0.25 * y f)
y f is weighted average discount yield obtained from weekly    (Here
auction of 91-day T-Bill on the day of expiry).
The methodology of computation and dissemination of the weighted
average discount yield would be publicly disclosed by RBI.
Q11. What is the Initial Margin levied in T-Bill Futures?
A. The Initial Margin requirement is based on a worst-case loss
of a portfolio of an individual client across various scenarios
of price changes. The various scenarios of price changes
are so computed so as to cover a 99% VaR over a one day
horizon. In order to achieve this, the price scan range is
initially fixed at 3.5 standard deviation.  The initial margin so
computed is subject to a minimum of 0.1% of the notional
value of the futures contract on the first day of trading in 91-
day T-bill futures and 0.05% of the notional value of the
futures contract thereafter (the notional value of the contract
shall be ` 200,000). The initial margin is deducted from the
liquid net worth of the clearing member on an online, real
time basis.
Q12. What is the Extreme Loss Margin levied in T-Bill Futures?
A.Extreme loss margin of 0.03% of the value of the gross open
positions of the futures contract is deducted from the liquid
assets of the clearing member on an on-line, real-time basis.
Q13. What is the Calendar Spread Margin levied in T-Bill Futures?
A.Interest rate futures position at one maturity hedged by an
offsetting position at a different maturity would be treated as
a calendar spread. The calendar spread margin shall be at a
value of ` 100/- for spread of one month, ` 150 for spread of
two month, ` 200/- for spread of three month and ` 250/- for
spread of four month and beyond. The benefit for a calendar
spread would continue till expiry of the near month contract.
For a calendar spread position, the extreme loss margin
shall be 0.01% of the notional value of the far month
contract.
Q14. How is the volatility in the Interest Rate Futures contract estimated?
A.The EWMA method is used to obtain the volatility estimate
every day fixing the price scan range at 3.5 standard
deviation. The estimate at the end of time period t (σydt) is
arrived at using the volatility estimate at the end of the
previous time period, i.e., as at the end of (t-1) time period
(σydt-1), and the return (r ydt) observed in the futures market during the time period t. The formula is as under:
(σydt)2 = λ (σydt-1)2 + (1 - λ ) (r ydt)2
where,
λ (lambda) is a parameter which determines how rapidly volatility estimates changes. The value of λ is fixed at 0.94.
i. σydt (sigma) is the standard deviation of daily
logarithmic returns of discount yield of 91-day T-
Bill futures at time t.
ii. The "return" is defined as the logarithmic return: r ydt = ln(Y dt/Y dt-1) where Y dt is the discount yield of
91-day T-Bill futures at time t. The plus/minus 3.5
sigma limits for a 99% VAR based on logarithmic
returns on discount yield of 91-day T-Bill futures
would have to be converted into price changes
through the following formula :
σpt=D*σyd t* Y dt
where
σpt means the standard deviation of percentage
change in price at time t
D means Modified Duration
Y dt =Discount Yield for 91-day T-Bill futures at time
t
σydt (sigma) means the standard deviation of daily
logarithmic returns of discount yield at time t
The margin on long position would be equal to 100
margin rate* (D*3.5σydt* Y dt) percentage of the notional value
of the futures contract and the margin on short

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