Mumbai, Aug. 29
Nearly 70,000 currency contracts were traded on the National Stock Exchange on Friday, the first day of trading in currency futures, which was inaugurated by the Union Finance Minister, Mr P. Chidambaram.
The bid-spread remained very tight through the day at 0.25 paise (1 tick), which was higher than usual spreads of around one paise or higher seen in the forward market, the NSE said in a statement.
The first trade on the exchange was by East India Securities Ltd. Among the bank participants, HDFC Bank was first to trade. The largest trade was by Standard Chartered Bank constituting 15,000 contracts. Banks contributed 40 per cent of gross volume.
The most-active contract was September 2008 expiry with around 43,000 contracts being traded. The near-month contract traded at a premium of 0.40 per cent to the spot price. “Around 300 trading members including 11 banks were registered in this segment,” said the NSE adding “trading took place from across major centres of the country.” Within the first few minutes of opening of trade, 5,000 contracts worth Rs 25 crore were traded, said a NSE official.
Twelve month contracts will be available for trading from September 2008 to August 2009. Inaugurating the trading in currency futures, Mr Chidambaram said the Government has advised regulators such as SEBI and the RBI to ensure development of currency, bonds and derivatives markets.
“It is important that these markets develop rapidly in order to attract domestic and foreign participation, have vibrant trading in spot and derivatives, have a healthy speculation and arbitrage to ensure liquidity.”
“I am glad we have been able to redeem a Budget proposal within six months of the proposal,” said Mr Chidambaram. As currency futures is a completely new product, the SEBI Chairman, Mr C.B. Bhave, asked intermediaries to educate their clients about the risks involved while trading in this new asset class.
“Those of you who are intermediaries here, are taking on the responsibility that you will not be in pursuit of volumes alone…. and part of your responsibility is also to make sure that your client understands the downside as well as upside of what they are doing,” said Mr Bhave.
The exchange traded currency futures market provides an excellent opportunity to hedge currency risks for different kinds of participants. Nationwide trading facility, the backbone of efficient clearing mechanism, and an efficient risk management system will benefit the universal participant including corporates, banks and individual investors, said the Finance Minister.
Mr Chidambaram highlighted new products introduced in the financial market in recent years and the long waiting period in their introduction after initially they were mooted.
The stock index futures took five years to be offered to the investors, exchange traded gold fund took four years to become a reality, interest rate derivatives were launched in 2003 but haven’t taken off. “These experiences highlight the adverse environment financial innovations faces in this country. This should change,” he said.
“We need to continue to innovate and improve in the design of financial products, I hope this will be kept in mind when regulators review the next steps on exchange traded futures market, I urge them to move rapidly and with an open mind that are necessary in such situations.”
“For the first time banks are directly accessing exchange as members, there are 11 banks that have traded today,” said Ms Chitra Ramkrishna, Deputy Managing Director, NSE.
The exchange traded currency futures provide safe and transparent environment as one can see same price as does a sophisticated trader, in OTC market where banks and large corporates trade, its a step towards creating a complete set of financial market for India, said Mr Ravi Narain, Managing Director & CEO, NSE.
“Currency futures will provide further depth and breadth to the forex market,” said Ms Shyamala Gopinath, RBI Deputy Governor, adding Indian market was the 17th largest market in 2007-08 with a turnover of $48 billion.
Currency futures will have new products and more participants as the market matures, said Mr Chidambaram after the launch of currency futures trading on NSE on Friday. “This is only the beginning, lots of innovation will happen, new products will have to come in the market…two more exchange have got in principle approval and I hope they will come on stream soon,” said Mr Bhave.