The Hindu Business Line : Currency futures to benefit broking cos

The National Stock Exchange (NSE) has already started mock trading that has attracted more than 300 participants including banks and is slated to launch the product from August 29.

Multi-commodity Exchange (MCX) and Bombay Stock Exchange (BSE) are also expected to begin trading in rupee futures soon.

Stock brokers, who are allowed to act as an intermediary in this segment are likely to see a significant growth in their turnover once the rupee futures are launched.

The daily traded value in the over-the-counter (OTC) market for rupee, involving mainly banks and their clients, is about $34 billion or Rs 1,46,200 crores a day.

This figure far exceeds the daily combined turnover of both the BSE and the NSE. Even if a slice of this market shifts to the BSE and NSE, broking companies will see a significant growth in their top-line.

The success of the rupee futures on the Dubai Gold and Commodity Exchange (DGCX), that was introduced more than a year ago, implies that traders would be drawn to the instrument since this would help them to take directional calls on the Indian rupee.

High net-worth investors wishing to diversify risk can also take an exposure to foreign exchange market through these instruments.

There are, however, a few factors that can impede liquidity on this segment.

The limit of $100 million on the open interest applicable to trading members who are banks and the $25-million limit for other trading members means that larger exporters and importers might continue to deal in the OTC market where there are no limits on the hedges.

The margins that need to be paid on initiation of the contracts and the settlement of daily mark-to-market differences could be cumbersome to some corporates and make them move away from this mode of hedging their risk.

Another factor that is likely to reduce the liquidity on this segment is the absence of foreign institutional investors since the Reserve Bank of India has allowed only ‘persons resident in India’ to buy or sell currency futures.

FIIs are already active in the DGCX and the non-deliverable forward markets in international centres and closing the doors to them, may shut out this opportunity for domestic exchanges and intermediaries.

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