Currency futures in India would become a reality from next month enabling traders to hedge against foreign exchange fluctuations, but foreign institutional investors (FIIs) and non-resident Indians (NRIs) are unlikely to be allowed to participate.
“Three exchanges—NSE, BSE and MCX have applied for the trading platform and Reserve Bank of India (RBI) and the market regulator are working out the modalities,” said a senior official from Securities Exchange Board of India (SEBI), who did not wish to be identified.
Last month Sebi chairman CB Bhave had said that currency futures will become a reality in three months.
After appreciating by over 12 per cent during 2007 hurting export earnings, the rupee has fallen by nearly 11 per cent during the last four months triggering demands for a strong and well regulated currency futures market.
A technical committee of the RBI and SEBI has recommended a host of measures on the product design and participation and suggested a cautious approach before the market is thrown open for wider participation.
The committee is not in favour of allowing FIIs and NRIs to participate in currency futures and recommended that initially currency futures should be allowed only between the US Dollar and the Indian rupee.
“FIIs and NRIs are not allowed in the commodity trading too and so it is an extension of the same,” said Jayant Manglik, head commodity business, Religare Commodities. “They would be allowed once there is depth and liquidity in the market.”
The minimum size of the contract has been proposed at $1,000 and so traders can even hedge small amounts of dollar exposure.“Since rupee is pegged against dollar its fair to go ahead with rupee dollar contract and the small minimum size of $1,000 will make it easy for traders to hedge,” said Manglik.
Currency futures contract would be settled in cash in Indian Rupee and the settlement price would be the Reserve Bank reference rate on the date of expiry of the contract, which would be last working day of the month, excluding Saturdays.
The SEBI board has already taken note of the recommendations of the RBI-SEBI Standing Technical Committee.