NDF may lose out to Dubai's Re futures

Rupee futures, to be soon launched by the Dubai Gold and Commodities Exchange, is likely to be a preferred hedging and investment mechanism against currency fluctuations over the existing non-deliverable dollar/rupee forward market in south-east Asia, corporate treasurers said.

The Dubai exchange will launch rupee futures on June 7, after holding a mock trading session for its members June 2. "There was a need for a more transparent market than NDF markets currently operating on over-the-counter basis," said Colin Griffith, chairman, DGCX.

"This means easy access to pricing and no counter-party risk." DGCX will settle the rupee contracts every eight weeks. The exchange also allows futures trading in euro/dollar, dollar/yen and sterling/dollar.

"It could lead to finer pricing of rates," said N S Paramasivam, head of treasury, Essar group.

Companies having offshore entities or subsidiaries can hedge locally and in Dubai as well, and could also avail of arbitrage opportunity whenever possible, he said.

"It would be very helpful for hedge funds and foreign institutional investors. These entities can also profit from arbitrage opportunities between the futures rate that is fixed and the NDF rates," said a treasury official at Tata Consultancy Services.

According to DGCX, the size of the rupee futures contract will be of Rs 2 million , with monthly contracts for the first three months, and quarterly from the fourth to the 12th month.

The settlement will be done on the third Wednesday of the expiry month.

Open positions at expiry of contract will be settled in US dollar and based as per the Reserve Bank of India's reference rate, DGCX said.

In case of physical settlement, the euro-equivalent of the settlement price will be calculated, it said.