New Delhi: India will introduce trading in currency futures within three months, C.B. Bhave, chairman of the nation’s capital markets regulator, said.
Mumbai-based Securities and Exchange Board of India, or Sebi, is working with the central bank to help companies and investors hedge their currency risks as the rupee rallied the most in more than three decades in 2007 and later retreated to a 13-month low within six months. Currency futures are exchange-traded derivatives that allow investors to buy or sell currencies at a fixed price at a later date.
“Futures will surely add a good hedging option to the currency market, although it’s probably a bit too early to predict how well they’ll take off,” said Parthasarathi Mukherjee, treasurer at Axis Bank Ltd in Mumbai. “Futures are exchange-traded and so will be more standardized, and should make the process of price discovery more transparent.”
The market regulator, in association with the Reserve Bank of India, set up a technical panel to advise on the futures, the central bank said in its annual policy statement on 29 April.
India currently allows trading in currency derivatives, including forwards and options, which are contracts that are bought and sold on demand and not traded on exchanges.
Forward contracts in the offshore non-deliverable forward market show traders are betting on a 1% decline in the rupee to 43.01 against the dollar in six months. Non-deliverable contracts, settled in dollars, are used by traders to bet on currencies they can’t freely convert.
Six-month onshore forwards show an implied rate of Rs43.26 to the dollar.
The market regulator also ruled out relaxing curbs imposed last year on participatory notes, or PNs, a derivative tool that enables unregistered foreign investors to invest in Indian stock markets.
“No. Sebi has already notified the regulations which arose out of October decisions,” Bhave said on PNs.
In October 2007, the market regulator had imposed restrictions on foreign institutional investors, or FIIs, on issuing participatory notes.
FIIs and their sub-accounts were then asked not to issue fresh PNs against underlying derivatives and wind up their existing position in 18 months during which Sebi would review the situation from time to time. Curbs were imposed on their exposure to these instruments in the cash segment.
PTI contributed to this story.