BackSebi notifies operational norms for cross-currency derivatives
Sebi details guidelines that would enable exchanges to launch cross-currency futures contracts involving the euro, yen and the pound sterling
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Mumbai: Market participants will soon be able to access a wide range of currency derivatives and also trade in them for a longer period as the Securities and Exchange Board of India (Sebi) notified a 9am to 7.30pm trading session for cross-currency futures in its operational guidelines.
In a circular on Wednesday, Sebi detailed guidelines that would enable exchanges to launch cross-currency futures contracts involving the euro, Japanese yen and the pound sterling as well as options contracts of euro-rupee, yen-rupee and pound sterling-rupee.
Currently futures contracts are available only for currency pairs that have the rupee as one leg.
An options contract for only a single currency pair—dollar/rupee—is available.
However, the regulator has kept position limits unchanged for the new contracts.
For futures contracts in cross-currencies, 12 standardized monthly contracts will be made available to investors and the contracts will be settled in cash (rupees), the regulator said in the guidelines. The open position limit across all contracts should not exceed 15% of the total open interest for each cross-currency pair.
“The existing position limits of $5 million per exchange for non USD-INR contracts, all put together, for residents and FPIs (foreign portfolio investors), without having to establish underlying exposure, shall remain unchanged," the regulator clarified.
“The final settlement price of the cross-currency derivatives contracts shall be computed using the RBI (Reserve Bank of India) reference rate for USD-INR and the corresponding exchange rate published by RBI for EUR-INR, GBP-INR and JPY-INR, as applicable, on the last trading day of the contract," the guidelines said.
Open positions for FPIs are limited to 6% of the total open positions across all contracts. Exchanges can levy appropriate margins on investors, the regulator said, adding that margins would be collected in rupees.
In options contracts, premium style European call and put options will be allowed, the regulator said.
The trading session for options has been retained at 9am to 5pm.
Three serial monthly contracts followed by three quarterly contracts will be launched.
A longer trading session was the long-standing demand of market participants as it helps them capture key global events in pricing which they otherwise lose out on to foreign exchanges.
At present, the trading session on currency derivatives closes at 5pm.
While the Sebi circular notified an extended trading session for cross-currency derivatives, it did not elaborate whether the extension would be available for the current dollar-rupee derivatives.
The central bank had first announced the decision to allow cross-currency derivatives in its bimonthly monetary policy on 29 September, following which it notified the guidelines in December.
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