In 2009, if it was the National Stock Exchange (NSE) which commanded a slight edge in market share over the MCX Stock Exchange (MCX-SX) in the exchange traded currency derivatives market, 2010 has seen MCX-SX emerge as a dominant player in the currency segment.
Initially, while the entry of USE in the currency segment had led to snatching away of some market share from the incumbent exchanges, later it fell sharply, according to exchange data. USE on the first day of operation clocked a record turnover of Rs 45,486 crore, the highest ever by a currency exchange in India garnering a market share of over 52%. However, the initial euphoria faded away, while MCX-SX and NSE maintained its trading volume. Currently, its market share in terms of average daily turnover is between 6%-7%.
?We are just a three and a half month old exchange. Our total volumes and turnover will gradually increase with sustained participation from more number of trading members, said T S Narayansami, MD & CEO, USE adding that the exchange is confident of capturing a market share of at least 25% by the end of June 2011.
While MCX-SX is the market leader in terms of turnover, NSE has a higher open interest (OI) positions as a percentage of the total traded volume on the respective exchanges as compared to MCX-SX. Open Interest is the outstanding positions that has not been squared off at the end of the day. A higher proportion of OI in relation to their total traded volume indicates more participation from long term players like banks, and corporates amongst others.
Ever since the RBI-Sebi technical standing committee allowed currency futures trading on exchanges, the segment have been steadily attracting wider participation from market participants which is known from the lower bid-ask spread. A lower bid-ask spread indicates lower cost of entering and exiting a trade. During the past financial year 2009-10, around 95% trading at NSE and 99% trading at MCX-SX in rupee-dollar futures contract took place at a narrow bid-ask spread of less than or equal to half a paisa, according to data compiled by Sebi.. This is much lower as compared to bid-ask spread of 7 paise for Over The Counter (OTC) currency forward market.
?Banks are increasingly becoming part of exchange-traded currency market,? says Pramit Brahmbhatt, CEO, Alpari Forex (India), one of the leading forex brokers in India. ?With addition of more products in the exchange traded currency segment, we expect the overall turnover of currency exchanges to cross the total equity and equity derivative turnover in India by the end of 2012,? he said. The average daily turnover of domestic currency exchanges has almost tripled in the past one year.
