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Our Bureau

Mumbai, Aug. 28 More than 300 members will be eligible to participate in currency futures trading on the National Stock Exchange of India on Friday, when the facility gets flagged off by the Union Finance Minister, Mr P. Chidambaram, said a top NSE official.

In order to encourage active participation in the Currency Derivatives segment, the NSE has decided that no transaction charges will be levied on the trades done in this segment on the exchange from August 29 till September 30.

However, every trading member participating in currency derivatives during the above period shall be required to make a lump-sum contribution of Rs 500 towards an Investor Protection Fund, says an NSE circular.

Currency futures are standardised foreign exchange contracts traded on a recognised stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the purchase or sale date.

Only US dollar-Indian rupee contracts would be allowed. The contract size will be of 1,000 US dollars and the tick size (minimum price fluctuation) will be 0.25 paise.

The prices in currency derivatives segment shall be displayed, traded and reported up to the fourth decimal place instead of up to two. For example, Rs 42.50 shall be displayed as Rs 42.5000.

The trade in currency futures will co-exist with the already prevalent OTC market for forwards, where the banks and corporates have been hedging their foreign currency risks so far. The OTC market has an average daily volume of $34 billion, said the NSE. Unlike OTC contracts that are bilateral, the exchange-traded currency futures contracts will be transparent.

Banks are also allowed to become members of the exchange to participate in currency futures trade. All resident Indians are allowed to participate in currency futures, only NRIs and FIIs are not eligible to trade.

All Group 1 securities, bank guarantees, receipts of fixed deposits will be allowed as collaterals for the margins required to be deposited by the investors trading in currency futures.

More Stories on : Stock Exchanges | Derivatives Markets | Forex

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