With exchanges set to levy transaction charges in the currency derivatives segment, it appears that a section of market players has already started reducing its activity in the segment. The last couple of days have seen the volumes in the currency segment falling nearly 50 per cent.
Early this week, the combined turnover in the currency derivatives segment fell to Rs 41,673 crore. The average daily volume in the recent past has been in excess of Rs 70,000 crore, according to data compiled by BS Research Bureau.
Market participants say arbitrageurs have started reducing their exposure to the segment, anticipating erosion of margins once the transaction charges are implemented. According to a circular, the National Stock Exchange (NSE) will start levying charges from August 22.
Currently, NSE, MCX Stock Exchange (MCX-SX) and the United Stock Exchange (USE) are the three bourses that offer trading facility in currency derivatives. While NSE and USE offer currency futures and options contracts, MCX-SX’s offering is limited to futures contracts.
At present, none of the exchanges charges any fee from members for trading in the currency derivatives segment, a fact challenged by MCX-SX at the Competition Commission of India. MCX-SX had alleged NSE was unfairly using its dominant position in other markets and not charging any fee in the currency derivatives segment.
While there has been a marked fall in volumes of all the exchanges, NSE has borne the maximum brunt. The exchange, which enjoys a monopoly in the equity derivatives segment, saw the volumes falling to Rs 11,500 crore on Tuesday. On August 9, NSE reported a total turnover of Rs 33,375 crore, followed by Rs 31,025 crore the next day. According to the NSE circular, from August 22 onwards, members will have to pay between Rs 1 and Rs 1.15 for every Rs 1 lakh of turnover in the currency futures segment.
In addition, five paise per Rs 1 lakh would be charged towards the NSE investor protection fund trust. On currency option contracts, members will pay a transaction fee between Rs 30 and Rs 40 on every lakh rupees of premium payable, while Rs 2 per Rs 1 lakh of premium will go towards investor protection fund.
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NSE challenges CCI order
Meanwhile, NSE has challenged the CCI order by filing an appeal with the Competition Appellate Tribunal. The exchange has sought an interim relief from the payment of penalty imposed by the commission and also any kind of compensation that could be claimed by MCX-SX or any other third party. CCI has imposed a penalty of Rs 55.5 crore, which is 5 per cent of the bourse’s three-year average turnover.
The currency derivatives segment, which was launched in 2009, saw a gradual increase in the volumes as exchanges did not impose any kind of charge in their attempt to attract more players. A bitter fight between NSE and MCX-SX, however, saw the issue being challenged at CCI, which ruled that NSE should impose transaction charges. It is widely believed that once NSE starts charging transaction fees in the currency segment, other exchanges — MCX-SX and USE — will follow suit.