BackPlan to extend market timings put on hold
Sebi had proposed to keep exchange-traded currency derivatives open till 7.30pm
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Mumbai: Five months after circulating a draft circular among all stock exchanges seeking suggestions on a possible extension of market timings in the currency derivatives segment, the issue has been put on hold.
According to two persons familiar with the development, even though market participants have been demanding longer trading hours for currency derivatives, the regulators are not confident this will work as the underlying spot currency market closes at 5pm. This could hamper the functioning of the derivative segment.
“One of the key difficulties is the fact that the spot market closes at 5pm. So, keeping the derivative market open for longer may create certain difficulties. However, the Reserve Bank of India (RBI) has to take a call on this and decide if it is feasible to keep the currency derivatives market open for longer duration than the underlying spot rupee market. Sebi has not taken any decision yet on this," said a person directly familiar with Sebi’s thinking.
Currency derivative contracts allow investors to hedge against changes in foreign exchange rates between a pair of currencies. Exchanges in India offer contracts based on rupee-dollar, rupee-euro, rupee-pound and rupee-yen currency pairs.
According to a second person familiar with the matter, discussions on extending the trading hours in currency derivatives segment were initiated following representation by bourses.
“But now, it is not there in the priority list because there appear to be practical difficulties in the implementation of longer trading hours," he said, requesting anonymity as he is not authorized to speak to the media.
An email query sent to Sebi remained unanswered. An RBI spokesperson said there was no development on the matter. The exchange-traded currency segment is jointly regulated by Sebi and RBI.
As per the draft circular issued on 10 December, Sebi had proposed to keep the exchange-traded currency derivatives segment open till 7.30pm, extending beyond the current 5pm cut-off. The draft circular said that the extension is being proposed “based on the suggestions received from market participants and in consultation with stock exchanges and secondary market advisory committee (SMAC).
SMAC comprises of members representing Sebi, stock exchanges, depositories, brokerages and investor associations and its mandate is to recommend measures to improve market efficiency and structure.
Mint has reviewed a copy of the draft circular, which also gave exchanges and clearing corporations time to offer comments or suggest modifications.
All the three stock exchanges—BSE Ltd, National Stock Exchange of India Ltd and Metropolitan Stock Exchange of India Ltd (formerly MCX Stock Exchange)—offer trading in currency derivatives.
A.V. Rajwade, director of AV Rajwade and Co. Pvt. Ltd, a foreign exchange and interest risk management firm, says that the concerns of the regulators are misplaced and that longer trading hours would help bring trades to the local market.
“In my view, keeping the exchange segment open for longer trading hours is certainly possible (even if the underlying spot market closes at 5pm). I do not understand the apprehensions of the regulators as the settlement will be done on maturity at the RBI reference rate on that day. So, the time of trade is irrelevant," said Rajwade.
“Many entities who participate in the non-deliverable forward (NDF) market are from different time zones and they do need longer trading hours. If exchanges are shut, they will be forced to go to NDF market," he added.
NDFs are foreign exchange forward contracts traded in over-the-counter markets at offshore destinations and remain outside the regulatory purview of Indian regulators. Singapore, London and Dubai are the popular offshore markets where rupee NDF contracts are traded.
On Tuesday, the total turnover in the currency derivatives segment on the three exchanges was ₹ 43,346 crore or approximately $6.9 billion. While the latest NDF data is not available, as per a Bank for International Settlements (BIS) review paper, NDF contracts worth $17 billion were traded daily in April 2013. Data on the NDF market comes with a significant lag.
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