A day after it reassured currency markets saying it would step in via exchange traded currency derivatives if needed to support the rupee, the Reserve Bank on India (RBI) on Thursday announced a host of products — cross-currency futures and exchange-traded cross-currency option contracts — across a range of currencies. The move makes it easier for companies hedge exposures in foreign currencies and will be particularly useful to information technology and pharmaceutical firms that operate in the US, Europe and Japan.
“The currency markets will become deeper over the medium term because there will be more products and more players,” Jayesh Mehta, managing director and treasurer, Bank of America, explained, pointing out that while the products were available on the over-the-counter markets, they were only for corporates with underlying requirements. “These have now been introduced on the exchanges with the open positions to be prescribed by the exchanges,” Mehta observed.
Meanwhile, the central bank also announced measures to broaden the “when issued” securities market, allowing banks to go short and players such as mutual funds, NBFCs, insurance firms and pension funds to go long. It also revised the open position limits for both new and reissued securities, doing away with limits on long positions. “With trading limits having been enhanced, liquidity will improve leading to better price discovery at the auctions,” explained Shashikant Rathi, EVP and head, investments, at Axis Bank.
The “when issued” market refers to a conditional market with transactions being settled when the securities are auctioned and issued.
The new products introduced in the forex market include currency futures and exchange-traded cross-currency option contracts in the currency pairs of euro-dollar, pound-dollar and dollar-yen. Further, exchange-traded option contracts in the currency pairs of euro-rupee, pound-rupee and yen-rupee have been introduced in addition to the existing dollar-rupee pair. “The cross-currency contracts shall enable direct hedging of exposures in foreign currencies and facilitate execution of cross-currency strategies by market participants,” the central bank said in a statement.