Mumbai:India’s market regulators are in talks to extend timings of currency derivatives trading, two people aware of the discussions said, a move expected to help investors hedge their currency risks better.

Currency derivatives trading in India now starts at 9am, offering futures and options contracts in dollar-rupee, euro-rupee, pound-rupee, yen-rupee, T-Bills and interest rate futures, and closes at 5pm. Trading in cross-currency derivatives such as euro-dollar, pound-dollar and dollar-yen is open until 7.30pm. The Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) are in discussions to extend these timings to 9.30pm and 11.30pm respectively.

“Longer trading hours should help clients better in hedging their risks arising from investments or transactions made in foreign currency denominations. If there is any major global event outside India or even any domestic event, which may potentially affect the economy or exports or investments, longer market timings will allow companies to take the required action for minimizing the risk by buying or selling currency derivatives contracts," said the first person.

Rupee is now listed on four overseas exchanges: Dubai Gold and Commodities Exchange (DGCX), Singapore Exchange Ltd (SGX), Intercontinental Exchange (ICE) and Chicago Mercantile Exchange (CME). Volumes and open interest positions in rupee derivatives in these exchanges typically rise after the close of Indian market, indicating the migration of such trades overseas. The move aims to lure investors, especially foreign portfolio investors (FPIs), away from over-the-counter (OTC) market and foreign exchanges, and choose Indian exchanges instead.

“The timing can be up to 9.30pm for rupee-based pairs and up to 11.30pm for cross-currency pairs. The commodity derivatives market is open till 11.30pm and the regulators or exchanges have not faced any problem in managing it. Currency is like a commodity in several ways. So, the market timing can be extended to up to 11.30pm for currency derivatives. The discussion is on, Sebi is fine with the proposal and has communicated to RBI on this. RBI may take a final call soon and announce it," the first person said.

Emails sent to Sebi and RBI remained unanswered.

Currency hedging helps investors mitigate losses due to fluctuations in foreign exchange rates. Currency futures traders also make arbitrage benefits out of different exchange rates in different markets and exchanges.

The early closure of Indian bourses drives investors to other destinations such as SGX, DGCX in Dubai and CME.

To be sure, extension of timings has been a long standing market demand, but the plan was stuck because exchanges and banks were not ready to handle the processes.

According to the second person cited above, early timings export Indian markets to offshore exchanges, which is not desirable. This, he said, is why RBI recently raised position limit for clients to $100 million.

“Earlier, there was a fear longer trading hours may cause extreme volatility and require stronger manpower and technology. Those fears have abated now and exchanges and banks have shown readiness to handle longer trading hours. They are already doing it for commodities. So, it should not be a problem to increase timing for the currency market," said the second person.

“Currently, out of about $250 billion exposure of FPIs in India, only about 10% is hedged in India and that too mostly in OTC," he added.

T. Venkatesan- head, forex treasury at Tata Consultancy Services Ltd, said, “Extension of trading hours is a good move but will mostly help FPIs. What we really need at the moment is liquidity. FPIs are mostly on the sell-side of the market. Extension of timings will increase the arbitrage advantage they get from from India."

“TCS is keen in developing the currency futures market. For creating liquidity, we need buy-side entities, possibly oil importers, Venkatesan said. “Sebi and RBI must engage should strongly urge oil importers and corporations to participate in the market. The regulators should also explore the possibility of introducing delivery based currency futures," he added.

Sanjay Guglani, chief investment officer of Singapore-based Silverdale Funds, said, “We hope eventually the trading will become 24x7 which would provide real edge to Indian stock exchanges. Until then, barring real arbitrage advantage, it is preferable to hedge ex-India to avoid hassles of income-tax in India, hedging limits, etc., and avail fund house’s centralized hedging operations."

As per a BIS 2016 survey, out of a total daily turnover of $58 billion in rupee globally (excluding exchange turnover), about almost $20 billion is recorded in the offshore OTC market. On Indian exchanges, the currency derivatives turnover is around $2.5 billion and the last BIS survey did not consider this figure because it is too low. Rupee is among the top five traded currencies in off-shore market, according to the survey.