An RBI internal working group has favoured the introduction of currency futures, following the spiralling cross-border fund flows that have increased exposure to market risks. But the group also observed that countries that have introduced currency futures were those with full capital account convertibility.
RBI on Friday posted the group’s report on its website for feedback.
?In India, currency futures have so far not been allowed in view of the imperatives of the controls on the capital account,?? the report said.
The introduction of currency futures will not alter the role of RBI in the domain of exchange rate management, the report said. ?The Reserve Bank will continue to retain the right to stipulate or modify the participants and/or fixing participant-wise position limits or any other prudential limits in the interest of financial stability.??
The report further says: ?International experiences, albeit of select countries like South Africa and South Korea, suggest that currency futures could coexist with the over-the-counter (OTC) currency markets as well as capital controls.?? The regulatory structure in India enables hedging by use of OTC products such as forwards, swaps & options, and structured products.
The group has also set out the terms of contract and size, settlement cycles, eligible players, issue of unique identification number, timings, membership type, eligible intermediaries, clearing, margins, entities that would serve as exchanges, and reforms required in OTC trades.
On the contract size, the group has recommended a single contract of notional value $1,000. The group felt that it was important that the size be kept at a level that facilitates price discovery as well as trading, particularly for the retail segment of the market.