India's central bank decided to allow the trading of interest rate options, effective Jan. 31, 2017.

The interest rate options to be introduced are contracts whose value is based on rupee interest rates or rupee interest rate instruments. The options are allowed on exchanges as well as in the over-the-counter market. Exchanges, however, will need to get approval before introducing interest rate options.

The Reserve Bank of India said Dec. 29 that eligible market participants are allowed to take positions in interest rate options for their own balance sheet management and for market-making purposes.