Posts Tagged ‘derivatives’

Ace Derivatives & Commodity Exchange

Ace Derivatives & Commodity Exchange with over five decades of impeccable experience in commodity trading, has recently transformed itself and established an online multi-commodity platform with a pan-India presence. Kotak Group is the anchor investor in ACE Commodity Exchange with a 51 per cent stake, while Haryana”s Hafed has a 15 per cent interest and banks like Bank of Baroda, Union Bank and
Corporation Bank have an over 14 per cent stake. The remaining equity is held by Ahmedabad Commodity Exchange members.

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Products offered

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Ace offers futures trading the following commodity groups:

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Bullions: Gold, Silver

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Energy: Crude oil, Natural Gas

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Agri

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•Castor Seed (Ex-Warehouse Ahmedabad)

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•Mustard Seed (Ex-Warehouse Jaipur-inclusive of all taxes but exclusive of Sales tax/ VAT)

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•Soybean Ex-Warehouse Indore -inclusive of all taxes but exclusive of Sales tax/VAT)

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•Refined Soy Oil (Ex-Tank Indore-Inclusive of all Taxes and Levies)

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•Pulses

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•Chana

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•Spices

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•Turmeric

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The Kotak-anchored exchange started futures trading in soybean, soyoil, rape/mustard seed, chana and castor seed. With the launch, the first set of contracts will be available for trade for delivery on November 20, December 20 and January 20.

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The lot size of trading is fixed at 10 tonnes of each contract. According to the exchange data, the castor seed contract for December-expiry opened at `3,442 a quintal, chana at `2,440 a quintal, soyabean at `2,244 a quintal, mustard seed at `573 for every 20 kg and refined soy oil at`545.90 for every 10 kg.

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Trade Timings:

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Agri: 10:00 a.m. to 05:00 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Bullion/Metals: 10:00 a.m. to 11.30 p.m. (Monday to Friday)

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10:00 a.m. to 2:00 p.m. (Saturday)

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Risk Management

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The Exchange assumes the counter party risk by guaranteeing trade settlement. The Risk Management framework of the Exchange ensures timely settlement.

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More hands working on…..

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Haryana State Cooperative Supply and Marketing Federation (Hafed) is planning to set up spot exchanges of the recently launched Ace Derivatives and Commodity Exchange (ACE) in mandis soon. The association of Hafed with the ACE will help it in playing the role of an aggregator and a risk manager on behalf of thousands of farmers, who will be motivated to become participants of the ACE in the coming decade.

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In addition to its convenient trading platform, Ace provides a robust clearing & settlement infrastructure that supports the complete process of trade intermediation – including registration of trades, settlement of contracts and mitigation of counter party risk; giving traders the peace of mind in times of increased market volatility.

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OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

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COMBINING TECHNICAL ANALYSIS WITH OTHER RESEARCH TECHNIQUES

Though technical analysis as a research tool can be used in isolation but for the betterment of subject under study i.e. financial markets; we can employ other research tools in combination to technical for the best possible outcomes. Due to lack of technical knowhow, people opt for one of the many research tools available to us. On the other hand, markets are globalizing and probability of generating return is diminishing with the every passing day so to surpass the competition, one should have the basic knowledge of the other research tools as well so that they can deploy the same as and when required. Technical analysis is concerned with when and how to place money. It determines the optimal timing for a position and conclusions about how long to stay in a particular trade have significant importance for the kind of derivatives structure one may use.

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Using derivative instruments requires strong background as the nature of the product has several advantages and at the same time disadvantages if used without the proper understanding.

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So by combining the aforesaid research methodology, there are various trading possibility arises which ensure sustainability of return despite fluctuating market conditions. In emerging markets, these concepts are getting popular for the consistent return with minimum risk. Derivatives help to hedge the position in the underlying to avoid unmanageable losses.

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For success in any market condition, one need to know the prevailing trend which we can make out through technical analysis now comes the derivative part that what we can do within that trend for maximizing the return with the minimum risk. There are N numbers of trade possibilities once you generalize the market direction well. Technically, there are tools like Moving average, which indicates the prevailing trend once we overlay above the same on price chart so if the trend is up the bullish strategy like Bull call spread, call buying and many more. In other words, there are techniques for every market condition so understanding of derivative will give you an edge as the major segment of the market participant is still not clear over the profitable usability of the same so all you need is confirm the prevailing trend whether its’ up, down or sideways and design the strategy accordingly.

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To start with, it does require study of different terminology and their implications from the derivative segment that will ultimately be fruit full in future.

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By taking an example, the concept will be crystal clear. In the recent past, I have employed one of those techniques for trading Reliance industries. The related analysis is explained with the chart shown from the snap shot of the report dated 09th June, 2010.

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On the weekly charts, it was trading in uptrend channel with the slow pace of inclination. It tested the lower band of the channel thrice in the past and was trading around the same zone. With the help of Bollinger band, we noticed that the bottle neck pattern was formed which indicated possibility of sharp move either side in the near future with rise in volatility.

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Accordingly, we recommended buying straddle. Strategy – Buy CA 1000 June@ 30 and Buy PA 1000 June @ 21 so the total cost of building strategy was 30600 {total premium paid (i.e. 30+21= 51) * lot size of 300*2}for the target of overall rise in the premium paid by `20-30 (i.e. – `71-81) with the stop loss of decline in premium paid by Rs 10. ( i.e. `41) Though the overall trend was sideways but we witnessed that such opportunity may arise due to rise in volatility and trigger the position accordingly.

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Within a week, it outperformed the above mentioned target by good margin. The idea is to enhance the base so that the probability of beaten down in adverse situation reduces. Better defense is more important than attack and derivative provide the same against the market odds when one fails to realize that the deterioration may erode the capital if not tackled on time so it make sense to combine the derivative strategy with technical to get the optimal returns with calculated risk.

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OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

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Weekly Update 3rd- 7th May 2010

The week started on a positive note on the back of good global tidings. Markets worldwide have gained after Greece decided to tap into the EU- IMF loan, but the rally could not be sustained and fell like nine pins as heightened sovereign debt troubles in Europe sent global markets in a bit of a tizzy.

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On the global front, FOMC maintained the target range for the federal funds rate at 0 to 1/4 percent as the economy is still seeing high unemployment, modest income growth, employers reluctance to add to payrolls & bank lending contraction. It said that it would continue to monitor the economic outlook and financial developments and would employ its policy tools as necessary to promote economic recovery and price stability. Japan saw unemployment rate climbing to five percent indicating job rebound may moderate. Europe equity markets fell after Standard & Poor’s downgraded three Eurozone members.

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Investors withdrew money from the Europe equity funds & debt funds saw net inflow. Closer home too, markets witnessed volatility as traders rolled over their positions in the derivatives segment from the April 2010 series to the May 2010 series. On the flip side the Q4 March 2010 corporate earnings announced so far have been good with net profit of a total of 441 companies rose 28.70% to Rs 29125 crore on 36.40% rise in sales to Rs 249959 crore in the quarter ended March 2010 over the quarter ended March 2009. The IMF is optimistic about the growth of Indian Economy. It has estimated that India’s $1.2 trillion economy will expand 8.8% this year and 8.4% next year, higher than it projected in January. While RBI expects India’s economy to expand 8% in the year ending March 2011 (FY 2011) with an upward bias expecting normal monsoon this year and sustenance of good performance of the industrial and services sectors on the back of rising domestic and external demand. The IMD has predicted normal monsoons in 2010 at 98% of Long Period Average subject to an error of (+/- 5%). Besides the passing of the Finance Bill 2010 by FM on Thursday with some minor changes in tax proposals may boost sentiment as the government has pledged to the path of fiscal consolidation rather than political opportunism.

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Overall the world markets were quite volatile in the week gone by with wild swings on both sides. Shanghai and Hang Seng could not recover from the fall though other markets recovered. Base metals also took a sharp correction. The strength in the stock markets is there more in cash stocks rather than front line heavy weight index stocks. Nifty has support between 5200-5150 levels & Sensex between 17400-17300 levels.

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Recent moves in commodities are showing that they are moving in different directions. It is indicating the state of uncertainty, where commodities are moving on their own fundamentals. Safe haven buying may keep gold in upper range. While after a steep fall, base metals may try to trade in a range.

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Approaching summer demand amid availability of ample crude stocks can keep crude oil in a range. Some agro commodities viz., pepper, jeera, chilli, cardamom, mentha etc., may surge on good overseas as well as domestic demand.

THE CHANGING COLOURS OF COMMODITY EXCHANGES

Trading Hours is basically the hours of a day where trading of a futures contract can take place in an exchange. Again, this varies widely according to the asset being covered. Some commodities futures are traded only a couple of hours a day and some index futures are traded 24 hours a day non-stop.

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With a number of exchanges around the world, trading takes place almost 24 hours a day, except on weekends. There are at least a dozen major exchanges that serve as a marketplace for commodities worldwide. Each of these specializes in certain commodities, while others trade in whole different set.

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Additionally, as the side effect of being such a huge market, the market is extremely liquid and numerous transaction volumes takes place daily.

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Instruments (contracts) traded on commodity exchanges include futures, options and other derivatives. Agricultural products, precious metals, industrial metals, and fossil fuels and other forms of energy are other products are among the primary goods that are traded in these exchanges.

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A concept is emerging for trading in movie futures. Media Derivatives, a division of Veriana Networks, and Cantor are racing to set up the first US exchanges to offer futures on movie box office receipts. They are closing in on their goal of offering hedging — and speculation — instruments to investors and movie studios wary of audience fickleness and box office volatility.

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The basic purpose of commodity futures markets is to allow suppliers/users of the product to sell/buy such contracts, whereby they can “lock in” a future price of the commodity and thereby eliminate the uncertainty and risk of doing business while facing an unknown future price. However, commodity trading has moved to electronic trading from open outcry systems, following the trend in financial securities trading. Electronic trading has been found to affect areas like bid-ask spreads, transaction costs and speed of information dissemination.

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Commodity trading market is a lucrative field for investors. It generally refers to the future market, which empowers the traders investments, needs and can be gainful, expensive and enjoyable.

Trading Hours of Bourses Extended by SEBI :)

Trading Hours of Bourses Extended by SEBI

Trading Hours of Bourses Extended by SEBI

Market regulator SEBI on Friday extended the trading hours of bourses by up to two-and-a-half hours from 9 am to 5 pm, a move that may help in bringing back the trade that was seen shifting to Singapore Stock Exchange.

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It has been decided to permit the stock exchanges to set their trading hours (in the cash and derivatives segments) subject to the condition that the trading hours are between 9 am and 5 pm,” SEBI said in a statement.

The new trading hours would now help integrate the Indian bourses with Singapore and other Asian markets in the morning hours, and the European market in the evening hours, said SMC Capitals Equity Head Jagannadham Thunuguntla.

“Some trade that had shifted to SGX Nifty (Indian Nifty traded in Singapore Stock Exchange) can now be brought back to the country,” he said.

The current market hours stand from 9.55 am to 3.30 pm.

In Singapore, trading sessions are held between 9 am to 12.30 pm and 2 pm to 5 pm (local time).

In addition, there is pre-open routine from 8.30 am to 9 am and pre-close routine from 5 pm to 5.06 pm.

Singapore is around two and a half hours ahead of India.

This would provide an opportunity to NSE to try and align their timings to that of a few Asian markets like the SGX since this exchange permits trading in Nifty.

With market regulator SEBI now allowing longer trading hours, it is now up to the bourses to decide on the duration and when to reset their trade timings.

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Thunuguntla said, “All stock exchanges are likely to go for the maximum possible trading hours as they have been demanding it to be extended to 9 am to 9 pm.”

He said there is a serious competition ongoing between Bombay Stock Exchange and National Stock Exchange, and then there is the new competitor MCX-SX.

“I will be surprised if any bourse not utilises the full timing,” he added.

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Interest Rate Futures Section – Final Part :)

Interest Rate Futures Section Final Part

Interest Rate Futures Section Final Part

Hello Friends, we are here with the Final Part of our Interest Rate Futures educational section.
We would touch upon the benefits of the Interest Rate Futures and the future scenario related to it.

Here we go :

Key benefits of Interest Rate Futures:

Directional trading

As there is an inverse relationship between interest rate movement and underlying bond prices, so if one has strong view that the interest rates will rise in near future then he can take short position in IRF contracts and can be benefited from the falling futures bond prices.

Hedging portfolio

The holders of the GOI securities are exposed to risk of rising interest rates which in turn results in the reduction in the value of the portfolio.

So in order to protect against a fall in the value of the portfolio they can take short position in IRF.

Calendar spread trading

This spread is also known as an inter-delivery spread.

It is the simultaneous purchase of one delivery month of a given futures contract and the sale of another delivery month of the same underlying on the same exchange.

For example:

Buying a September 09 and simultaneously selling a December 09 contract.
A market participant can profit as the price difference between the two contracts widens.

The either case can also be possible.

Reduce the duration of portfolio:

Bonds with longer maturities are more sensitive to interest rate changes, and bond portfolio with longer duration will be more exposed to the vulnerability of the movement in interest rate.

So portfolio manager who is concerned about the rise in the short term interest rate risk would like to reduce the duration of the portfolio.

By entering into the IRF contract to NSE, the portfolio manager can reduce duration of the portfolio.

Arbitraging between cash and futures market:

Arbitrage is the price difference between the bond prices in underlying bond market and IRF contract without any view about the interest rate movement.

One can earn the risk-less profit from realizing arbitrage opportunity and entering into the IRF contract traded on NSE by initiating cash and carry trade.

Responses After launch:

After the launch of currency futures in August 2008, Interest-rate futures are the first major product to be introduced in India.

The interest rate futures began on August 31,2009 clocking trading volumes of Rs 276 crore in their first day of trade.

Market participants responded passionately to the product launch on the first day.

In around five hours of trading time available after inauguration, 1,475 trades were recorded resulting in 14,559 contracts being traded at a total value of Rs 267.31 crore.

In the beginning only two quarters has been introduced out of four, among which December 2009 was the most active with 13,789 contracts which has been traded actively.

There are nearly 638 members registered for this new product, out of which 21 are banks and there contribution to the total gross volume was 32.48 percent.

Future scenario:

BSE had received regulatory approval for interest rates futures and would launch in 8-10 weeks.

The Multi Commodity Exchange’s foreign exchange derivatives bourse has sought permission to launch trade in interest rate futures.

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However, For More latest Industry, Gyan, Stock Market and Economy News Updates, Click Here

INTEREST RATE FUTURES – Part 2

Hello Friends, just an extension of our previous blog on interest rates futures where we touched upon the topic of interest rates future and what is it exactly.

Now we would understand that why is there need for interst rate futures and many more related aspects in this regard.

Here we go :

Why Interest rate futures?

Why Interest rate futures?

Why Interest rate futures?

The risk associated with the interest rate is uncertain and it never has been constant in the past, infact it would not remain constant in future also.

The volatility of interest rates has increased manifold in the last couple of years and recorded 17.40% in 2008 as compared to 8.51% in 2007.

This high fluctuation in volatility increases risk and requires tools to manage those risks.

Interest rate futures are the product for managing such interest rate risk.

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Backbone of Interest Rate Future:

NSE, India’s largest stock exchange, began interest rate futures and offers the same reliable features as it provide to its other products with the following advantages:

Standardization and flexibility

•Price transparency and liquidity

•Leverage effect due to a wider collateral management

•Advance trading software and technological edge

•Centralized clearing supported by guaranteed settlement

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Who can be a part of it?

The major market participants of interest rate futures are

•Banks and Primary Dealers

• Mutual Funds and Insurance Companies

• Corporate Houses and Financial Institutions,

•FIIs and NRIs

• Member Brokers and Retail Investors.

In Final part of this topic (which we would cover in our next blog), we would throw light on the benefits of the Interest Rate Futures and the future scenario related to Interest rate futures.

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Stay Tuned 😉

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INTEREST RATE FUTURES – What’s That?

Hello Friends,

For past weeks we have been coming up with educational and informative inputs on topics like economic indicators, Positive Undertones in the Economy etc;

In this Blog now we would throw light on “Interest rate futures.

What is Interest Rates Future?

What is Interest Rates Future?

What are interest rate futures?

An interest rate futures contract is “an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today.”

Interest rate futures are useful to those who are willing to trade in future interest rates and would like to benefit from interest rate movements.

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The underlying instrument in this contract is 10 year National Coupon-bearing government of India (GOI) security, whereas the notional coupon is of 7% with semi-annual compounding interest rate.

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The GOI securities are the underlying assets which should have a maturity status between seven-and-a-half years and 12 years from the first day of the delivery month.

Interest Rate Futures are the most widely traded derivatives instrument in the world.

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The total outstanding notional principal amount in Interest Rate Futures is 30.09 times higher than equity index futures.

Interest rates are linked to a variety of economic conditions.

They can change rapidly, influencing investments and debt obligations.

In a market environment where long term debt issuance by the government is increasing and the demand for it is growing, there is a strong need for a cost efficient hedging instrument against interest rate.

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In Next Coming parts, we would try to understand why Interest rate futures are needed, what is the backbone of interest rate futures and many more related aspects in this regard. 🙂

Stay Tuned 😉

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Interest Rate Futures Trading Re-Launched in India after 6 years :)

IRF-trading-Nse

Trading in interest rate futures (IRF) kicked off in India after about six years on the National Stock Exchange (NSE)’s platform on Monday.

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The exchange traded financial instrument will give banks and corporates an avenue to hedge their interest rate risks.

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IRFs are contracts traded on the bourses with an agreement to buy or sell an underlying instrument with the date and the price pre-specified.

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The launch of IRF came a year after trading started in currency futures, which gives participants an avenue to hedge against currency risks.

With the launch of IRF, market participants now have the option to hedge foreign currency risks as well as interest rate risk.

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The launch of interest rate derivatives means a lot to the NSE, its constituency of brokers and all economic entities who face interest rate risk,experts quoted on the recent development.

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SBI, Union Bank of India, Central Bank of India, Axis Bank, ICICI Bank, and Standard Chartered Bank actively traded in the IRF market.

It’s the second birth for IRF as the product was launched in 2003 but did not succeed.

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All resident Indians and financial institutions, including

banks and FIIs, can trade in IRF in its new format. 🙂