Stock exchanges and regulators are believed to be in talks to extend the trading hours for the exchange traded currency derivatives (ETCD) market.
“The idea is to extend the timings to 11:30 pm and bring it at par with the commodity markets trading time,” a currency dealer said. Currently, the trading hours range between 9 am to 5 pm for both the spot as well as the derivatives markets.
A longer trading period would allow onshore trading hours for currency derivatives to overlap with Europe and London trading hours as also into New York trading hours.
It is expected to increase volumes locally. Currently, those players wanting to participate in the market post closing typically turn to the offshore non-deliverable forwards (NDF) market. Anindya Banerjee, AVP, at Kotak Securities said participants moving towards offshore markets to trade and hedge their Rupee exposures can do so in the home market if the timings are extended.
Experts also believe the move will help shield the markets from global shocks at a time when divergent monetary policies are emerging across developed nations. “This will allow local markets to deepen and over time, offshore centres to have less of an influence on our foreign exchange markets. RBI has started to participate on exchange traded Rupee futures to intervene,” he added.
It is noteworthy that reasonable activity in the NDF market takes place post the closing hours of Indian market, i.e. at 5 p.m. The major exchanges where Rupee derivatives are traded are at DGCX in Dubai, SGX in Singapore and CME in New York.
Soumyajit Niyogi, interest rate strategist at SBI DFHI believes the RBI’s recent notification stating it may interfere in the currency ETCD segment is a step towards influencing the large derivative market. “The announcement effect is also expected to contain any unwarranted volatility arising from the NDF market which tends to impact the currency onshore,” he indicated.
However, market players believe extension of the trading hours itself will not make sense unless the positional limits are also increased. Currently, local exchange traded derivatives have a positional limit of $15 million beyond which any further net positions will require the disclosure of an underlying exposure.
“Before June 2013, dollar/rupee futures had position limits of $100 million or 6% of open interest which ever was higher; this allowed greater participation from corporate hedgers, who have now shied away from hedging on exchanges,” Banerjee observed.
As currency dealers point out, higher positions limits between $300 million to $1.4 billion and extended trading hours are major attraction of global exchanges over Indian exchanges.
“At the same time, market should be liquid enough to absorb flows from RBI in large quantities in ETC market. For all these to happen, regulators need to urgently relax position limits on Rupee based futures on exchange traded market in India,” Banerjee said.
China on Wednesday took a big leap when it announced the extension of its onshore Yuan trading hours to 11:30 pm local time from 4:30 pm from January 4 and also allowed more foreign players in a bid to make its currency rate more in line with the markets. This is believed to be a step towards making the yuan more internationally acceptable.