The Hindu Business Line : Exchange-traded currency futures: 3 show interest

As many as three entities have so far evinced interest in launching exchange-traded currency futures, the Securities and Exchange Board of India (SEBI) Chairman, Mr C.B.Bhave, said here on Tuesday.

Indications are that the exchange-traded currency futures would be launched in the Indian market by this month-end.

Official sources said that the regulatory framework has been put in place and the Reserve Bank of India (RBI) was expected to issue the last set of notifications on this issue today. Mr Bhave said that SEBI would now examine the preparedness of these exchanges and then give its approval.

“It is very difficult to give a timeline as these entities are in various stages of preparing software and setting up hardware for this purpose”, he told reporters on the sidelines of Financial Planning Congress 2008, organised by the Financial Planning Standards Board India.

Sources said that the three entities that had evinced interest on exchange traded currency-futures were National Stock Exchange (NSE), Financial Technologies and a consortium of HDFC, Kotak group and SBI.

A currency futures contract is a type of financial futures contract where the underlying is an exchange rate. A futures contract is a standardised contract, traded on an exchange, to buy or sell a certain underlying asset or an instrument at a certain date in the future, at a specified price.

Where the underlying security happens to be a financial asset or instrument, the contract is referred to as “financial futures”. Currency futures are used primarily as a price-setting mechanism rather than for physical exchange of currencies.

In India, currency futures are already allowed in the over-the-counter (OTC) market. But exchange-traded currency futures have so far not been allowed in view of the imperatives of the control on the capital account.

IPO payment system

Meanwhile, Mr Bhave said that the new alternate payment system for public issues would most likely be launched as a pilot by end-August.

“We need to get used to it. We have to sort out glitches if there are any in the beginning”, he said.

The SEBI Chairman said that both the current system of payment through cheques and the alternate system would co-exist. It (alternate system) would not be pushed on to everybody.

The alternate payment system, called Additional Mode of Payment through Applications Supported by Blocked Amount, will exempt retail investors from making full advance payment and instead let the amount to be retained in bank accounts till the completion of allotment.