Exporters, importers, banks and financial services providers worried with the fluctuations of Indian currency against the dollar and other foreign currencies, finally have some good news. The Multi Commodity Exchange (MCX), the largest exchange in the country would soon launch currency futures trading in the country.
MCX has applied to Securities Exchange Board of India (Sebi) for the necessary clearance. The National Stock Exchange has also applied for launching currency futures. MCX, promoted by Financial Technologies, has floated a separate entity for launching futures trading in financial derivatives. ?We have the necessary expertise and infrastructure to launch such a product and we hope to get the clearance from SEBI shortly,? Massey Joseph, managing director & chief executive officer, MCX told FE.
At present, in the absence of currency futures trading in the country, the companies have been hedging their currency risk by entering into forward deals with banks where they agree to sell or buy the dollar or other foreign currencies, at a future date and predefined exchange rate. Experts have been terming the present arrangement with the banks as, ?less flexible, less liquid and less transparent?.
It is estimated that the US dollar forward market in the country has a volume of more than $3.5 billion. ?Granting permission to both stock and commodity exchanges to launch currency derivatives contracts would help in efficient price discovery process and would also ensure that all market segments are served effectively,? Massey said. According to an MCX official, the launch of currency futures is timely as the rupee is expected to becoming fully convertible. ?The currency futures contracts would also help in a gradual shift in trade from a non-deliverable forward (NDF) market to legitimate exchange,? the official said. It is known that international investors, multinational companies and Indian corporates with overseas operations have been speculating in the NDF market.