Dubai: The Dubai Gold & Commodities Exchange (DGCX) will on Thursday begin offering the world’s first exchange-traded futures contracts in Indian rupee, helping companies and investors hedge against risks.
The contracts, linked to the future value of the rupee and settled in euros, will trade in Dubai, the United Arab Emirates, David Rutledge, a director at DGCX, told reporters in Dubai on Wednesday.
The market is outside the jurisdiction of India’s central bank, which places curbs on trading in the rupee, he said.
“We think there is a real commercial need for this product,” Rutledge said. “Anyone involved in international trade with a rupee currency risk” might be interested, he said. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Trading on a futures market is a more transparent alternative to the so-called non-deliverable forwards (NDF), which are derivatives contracts arranged by banks.
Trading in such rupee-based contracts averaged about $500 million (Rs2,050 crore) a day in the second quarter of 2006, according to the Bank for International Settlements in Basel, Switzerland.
The rupee climbed 8.8% this year on increased capital flows as Asia’s fourth-biggest economy expanded at the fastest pace in almost two decades.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Forwards are agreements to buy assets at a later specified date. An NDF is typically settled in dollars and involves no physical exchange of other currencies.
The DGCX contract, to be traded on Dubai’s two-year-old commodities exchange, will compliment the NDF market, Rutledge said. Dubai is India’s third biggest trading partner.
“The advantage of an exchange-traded contract is that it is accessible at a low cost, and is transparent,” Rutledge said.
Banks offering NDFs “can hedge some risk” through the DGCX contract, he said. “It will be easier for them to offer NDFs.”
DGCX is a joint venture between the Dubai Multi Commodities Centre, Financial Technologies India Ltd and Multi-Commodity Exchange of India Ltd, according to the DGCX website.
Its first product was a gold contract, which began trading in November 2005, and has since been followed by silver, currencies, including the pound, euro and yen, and fuel oil. DGCX’s steel futures contract will debut on 27 June.