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The Association of Primary Dealers (APD) launched a series of Forward Rate Agreements (FRAs) and Interest Rates Swaps (IRSs) at the recently held National Conference on Fixed Income Securities Market.

At this conference four agreements were exchanged among Seylan Bank Asset Management Ltd, HNB Securities Ltd., First Capital Treasuries Ltd., Ceylinco Shriram Securities Ltd and the People's Bank. The total amount of the FRAs and Swaps was Rs. 200 million.

The association arranged with Naomal Goonawardena, Partner of Nithya Partners, the firm of lawyers of drafting of the required documentation based on the master agreements of the International Swap Dealers Association (ISDA).

Forward Rate Agreements and Interest Rate Swaps are two types of derivatives used in the Fixed Income Securities Market.

Forward Rate Agreements are derivatives where two parties agree on the applicable interest rate for a transaction covering a future period. These are used as methods of fixing interest rates for future exposures so as to hedge against interest rate risk.

Interest Rate Swaps are agreements whereby two parties exchange their floating rates receivables/payables against fixed rate receivables/payables. These instruments too help in portfolio re-balancing and hedging risk.

While FRAs and IRSs are widely used in International Fixed Income Markets, they have not been frequently used in Sri Lanka mainly due to absence of awareness, the required documentation and the practice of market making. It is expected that the initiative of the Primary Dealers will continue towards development of an active derivatives markets in FRAs and IRSs.

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