Mumbai: Indian primary dealers expect the Reserve Bank of India (RBI) to soon approve their request to trade currency futures on domestic exchanges, three officials said, opening up a new income stream for them as market conditions hit revenues.
Currently only banks, companies and individuals can trade currency futures, which were launched in September and are offered by three exchanges; the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) and the Multi Commodity Exchange of India (MCX).
Two weeks ago, Reserve Bank of India officials told primary dealers they would soon be able to trade currency futures after some regulatory issues were resolved, said the officials, who are involved in the talks and spoke on condition of anonymity.
“After the meeting, the central bank said it would issue a draft notification soon inviting comments and then issue a final circular allowing us to trade. We expect that to happen soon,” said a senior official at a primary dealer.
Another official said approval was expected within two months.
Among issues be resolved are trading limits for dealers, the sources said.
A RBI spokesman said the primary dealers had made an application to trade futures and it was under examination.
“This is a welcome move and it will increase depth in the markets,” said U Venkataraman, chief executive officer at MCX-SX, the futures trading arm of the MCX.
Central bank (RBI) data showed average daily volume of futures contracts traded on all exchanges has grown to Rs52.35 billion ($1.1 billion) in March from Rs2.60 billion in September.
The futures have a contract size of $1,000. Only dollar/rupee contracts are available and most trade is in near-month contracts.
Foreign investors are not able to trade the futures.
Trading limits for individuals and trading members are $10 million and $50 million respectively. There are also upper trading limits of 6% of total open interest for individuals and 15% for trading members.
The position limit for banks is 15% of the total open interest or $100 million, whichever is higher.
There are 17 primary dealers, whose main business is trading in government securities and underwriting federal auctions. Rising bond yields this year have weakened demand for debt and hit the dealers’ revenues.
Benchmark 10-year yields are up 145 basis points from end 2008 and with the government likely to borrow more from the bond markets this year to fund a rising deficit, yields are likely to rise further in coming weeks.
“Income from bond trading this year hasn’t been very good, and this gives us an alternative revenue stream,” one of the primary dealer officials said.