1. Offshore derivative trading volume swells as US Fed puts off rate hike

Offshore derivative trading volume swells as US Fed puts off rate hike

The offshore trading volume of Indian equity and currency derivatives are catching up with the domestic bourses as bets on the US interest rate...

By: | Mumbai | Updated: March 21, 2015 5:28 AM

The offshore trading volume of Indian equity and currency derivatives are catching up with the domestic bourses as bets on the US interest rate hike infuse volatility into markets.

Futures contracts with the rupee and 50-share index Nifty have changed hands faster in international bourses in March so far.

An average of around 8.85 lakh Nifty futures contracts changed hands on the Singapore exchange daily this month as against 10.92 lakh on National Stock Exchange.

offshore trading, US interest rate, NSE Nifty, National Stock Exchange

Take the case of the Indian rupee. The volume in the non-deliverable forward market is said to be over 60% of the onshore spot market. Jamal Mecklai, chief executive officer of Mecklai Financial Services, said the daily volume of the NDF market could be $3-4 billion. “The OTC offshore market is the real influencer. Our onshore market is too small for the size of the economy,” said Mecklai.

“The onshore forwards market is more end-user based and does not affect the spot,” said Brijen Puri, head of trading at JP Morgan adding the NDF rates do influence the spot in a big way.

In addition to the NDF market, trading of dollar/rupee futures on Dubai Gold and Commodity Exchange (DGCX), Chicago Merchantile Exchange (CME) and Intercontinental Exchange (ICE) has also risen exponentially. “Since the launch of India Rupee Futures contract, we have seen a large increase in the volumes. Till date, it has traded over $7.8 billion notionally,” Malcolm Baker, senior director, FX and Interest Rate Products, CME Group, told FE in an email response. CME has introduced new dollar/rupee contracts. The volume on the DGCX is the largest among the international bourses that trade the currency futures.

The average daily turnover of dollar/rupee futures on domestic bourses is around R25,000 crore (around $2.5 billion). The volume in onshore markets is still high compared with offshore, but overseas trading is fast catching up.

The NDF market was largely to cater to foreign investors’ hedging needs as the RBI norms prevent them from hedging onshore. But the NDF has metamorphosed into a market where even large Indian companies with cross-border presence have begun punting on the currency.

The offshore trades may have subsided off late given a stable rupee but ill-effects of them was seen when NDF rates accelerated the fall of the local spot rupee to an all-time low of 68.85/$ in August 2013. An encore of the same cannot be ruled out as warned by the International

Monetary Fund earlier this week. The IMF stressed that volatility akin to that in 2013 could get repeated.

Rupee in green for fifth straight day as $ slips

The rupee rose for the fifth straight session against the Greenback and ended at 62.46 with a gain of six paise on sustained selling of dollars, wrapping up its best week in about two months.

offshore trading, US interest rate, NSE Nifty, National Stock Exchange

Besides the US Federal Reserve’s signal that it will raise rates at a slower pace than previously forecast, foreign capital inflows into equity market also boosted the rupee value against dollar, a forex dealer said.

Bonds up
The 8.40% government security maturing in 2024 rose to R104.28 compared with R104.21 on Thursday, while yields fell to 7.75% from 7.76%.

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