More contract versions for currency futures

Written by Bijith R | Mumbai | Updated: Jul 31 2009, 05:45am hrs
Markets regulator Sebi plans to introduce more dollar-rupee contract versions to give currency futures traders a wider choice. It has also decided not to introduce trading in other currencies with the rupee at this time. We do not have much dem-and for other currency pairs. Instead, (traders) need more variety in the current single-pair offering, a senior Sebi executive told FE.

In a currency futures market, companies and traders contract for delivery of a specified amount of a currency at a prearranged price. This allows them to hedge against possible future price fluctuations. Since trades take place against a set of two currencies, they are termed currency pairs. Demand for dollar pairs is explained by the fact that Indias foreign trade is mostly conducted in that currency.

Average daily volumes for NSE currency futures in July stood at 8.69 lakh contracts, an increase of 1,388% over the 58,397 contracts at the launch of such trades in India last September. Average daily turnover on the NSE is now at Rs 4,220 crore, a 1,473% rise over the Rs 268 crore in the first month.

Average daily volumes on the MCXSX have also risen to 7.93 lakh contracts, an increase of over 1,000% against the 77,969 contracts traded in the first month of operations last October. Turnover has increased to Rs 3,852.87 crore. In the global market, total turnover is approximately $4.3 trillion.

Another reason why Sebi is going slow on the introduction of new currency pairs is the discomfort in RBI to trades in a large number of currencies. RBI feel that such price signals will make its job of managing volatility in the exchange rate of the rupee difficult. It has advised Sebi to go slow on the changes until capital account convertibility is introduced, the timetable for which is approximately three years.

In March, Sebi doubled the limit of daily positions in the currency futures segment that small traders and larger brokers can take to $10 million and $50 million, respectively. Other cha-nges on the anvil are expanding the minimum contract sizecurrently $1,000 with a maximum maturity of 12 months.

To attract corporates of all sizes and encourage greater retail participation in the currency futures segment, Sebi is planning to introduce mini and maxi contracts. The size of the maxi contract is likely to be either $5,000 or $10,000, while the mini contract under consideration is $500.