India adds euro, yen and pound to futures trade basket

The Securities and Exchange Board of India permitted stock exchanges to introduce currency futures in three more currencies -- the euro, the yen and the pound sterling. The move was previously approved by the Reserve Bank of India.
The market regulator said in a circular to the exchanges, ''It has now been decided to permit eligible stock exchanges to introduce currency futures on euro-rupee, pound sterling-rupee and Japanese yen-rupee.''

SEBI has also decided to modify the calendar spread margin to be applied on dollar-rupee contracts. Under the new modalities, the exchanges can launch these products as soon as they want.
The contract size for euro-rupee and pound-rupee would be EUR 1,000 and £ 1,000 respectively. The contract size for yen-rupee has been fixed at 100,000. All the new contracts would be quoted in rupee terms, while the outstanding positions would be in the respective foreign currency terms.

The maximum maturity of the contract would be 12 months, while all monthly maturities from 1 to 12 months would be made available. The contracts would be settled in cash in rupees. The client-level position limit has been capped at 6 % of the total open interest position.
Exchange-traded currency derivatives made their debut in India in August 2008, and have registered an impressive rise in volumes since then. The combined daily turnover on the NSE and MCX-SX has already risen to over Rs 30,000 crore ($ 6.5 bn) this month, from a mere Rs 2,000 crore (around $ 450 mm) in January last year. So far, only rupee-dollar futures have been available for trading.

The combined turnover of NSE and MCX-SX in currency futures is more than what equity trading generates in the cash market. The combined turnover of the Bombay Stock Exchange and NSE in the cash segment currently stands at Rs 23,214 crore, while the currency trading segment on MCX-SX and NSE generated Rs 34,482 crore turnover. The equity derivative volume on NSE averages Rs 50,000 crore.
Currency futures contract specifiesthe price at which a specified currency can be bought or sold at a future date. Such contracts allow investors to hedge against foreign exchange risk. Since these contracts are marked-to-market daily, investors can, by closing out their position, exit from their obligation to buy or sell the currency prior to the contract's delivery date.

Market participants welcomed the move, saying that volumes would see a substantial jump in the near future. MCX executive director U. Venkataraman said the introduction of new currency pairs would go a long way in helping market participants, especially international traders, hedge against cross-currency volatility and mitigate risk in exports and imports across all major traded currencies.
Expanding the menu of currency futures from the dollar-rupee pair is expected to give traders in the export-import business an opportunity to hedge currency risk directly under an exchange-trading platform, instead of having to take positions in the over-the-counter (OTC) market through a designated bank.