Volume soars as BSE joins NSE in the currency futures market

Volume soars as BSE joins NSE in the currency futures market

Mumbai: Trading volumes in currency futures shot to a record on Wednesday with the Bombay Stock Exchange, or BSE, joining the National Stock Exchange, or NSE, in offering the product. NSE started trading in currency futures on 29 August.

A swinging rupee-dollar exchange rate also helped the new product gain volume.

The rupee recovered from a five-year low of 47.23 to a dollar to strengthen sharply and close at 46.63 after the central bank intervened aggressively in the market. The Reserve Bank of India, or RBI, sold at least $3 billion in the market to stem the fall in local currency, foreign exchange dealers said.

The combined volume of currency futures on the two bourses stood at 154,953 contracts valued at $154.9 million. This is 58% higher than the $97.6 million worth of futures traded on NSE on 16 September, the previous high. On Wednesday, 89,267 contracts worth $89.2 million were traded on NSE and 65,686 contracts totalling $65.6 million on BSE.

Volumes shot up on Wednesday because of the volatility of the underlying asset (the exchange rate), according to Rugved Dhumale, senior manager, risk management solutions, at Mecklai Financial and Services Ltd, a foreign exchange dealer. “There were wild fluctuations and two-way movement and there were lots of opportunities to make money on both the sides."

RBI was seen selling dollars at 47.20 apiece and again at 47.10 and 46.90 to stem the rupee’s fall, dealers said.

Although trade volumes are going up, they are nowhere near global volumes in exchange-traded futures or the over-the-counter market.

“The day you see a daily volume of $400 million to $500 million, you can say that futures have picked up," said a currency dealer with a foreign bank who did not want to be named because he isn’t authorized to talk to the media.

Apart from NSE and BSE, the Multi Commodity Exchange of India has also got regulatory approval to launch trading in this category.

RBI allows only rupee-dollar futures of contract size of $1,000 now. NSE has said it wants to launch futures in euro, Japanese yen, Chinese yuan and pound sterling as well.

“There are demands from market participants that the currency trading norms should be relaxed," said C.B. Bhave, who heads markets regulator Securities and Exchange Board of India, at the BSE launch. “While we (Sebi and RBI) may not necessarily agree with all those demands, we are working to relax some of these norms."

Only Indians can now participate in the market. This means foreign institutions and non-resident Indians are left out.

Anup Roy contributed to this story.