FM nod for rupee, rate futures may speed up guideline process

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Finance minister P Chidambaram, in his Budget speech, announced the intention to launch exchange traded currency futures and interest rate futures.

However, this move did not have any major impact on the credit and debt markets. This was largely because the final modalities of these derivatives instruments were yet to be worked out and it is expected that the Reserve Bank of India (RBI) will announce a new set of guidelines shortly. Bankers, however, said the process of introducing currency and rupee futures is long drawn and it would take at least six months before the infrastructure and guidelines are put in place.

They said the announcement was only the intention of the government to move towards a more vibrant market and was a step in the right direction.

Already, various associations like Fixed Income Money Market and Derivatives Association of India (FIMMDA) and the Foreign Exchange Dealers’ Association of India (Fedai) have chaired various committee meets with the RBI so far. "The announcement is an indication that things will be on a fast track now,’’said a FIMMDA official who did not wish to be named. He said, on the debt segment, the government is following the recommendations made in December 2005 by the RH Patil Committee.

“Market development steps such as introducing exchange traded convertible bonds, will aid liquidity and price discovery,” said Neeraj Swaroop, regional chief executive of India & South Asia with Standard Chartered Bank. Ajay Mahajan, group president of financial Markets, Institutions & Investment Management with YES Bank said: “This move will benefit traders who hedge themselves against other currencies and on the futures market and help increase broad-based awareness and transparency.”

On Friday, the yield on the 10-year benchmark paper was flat at 7.6%, while rupee moved in a narrow range of Rs 39.97-Rs 40 a dollar. Golak C Nath, vice president and economic advisor of Clearing Corporation of India (CCIL) termed this as positive.