Trading volumes in the currency derivative segment crashed by nearly 40 per cent on Monday, as the stock exchanges started imposing transaction charges. A large number of arbitrageurs stopped trading in currencies, as their operational costs would overtake profits after these new charges.
On an average, the currency segment witnesses daily trade of Rs 55,000-60,000 crore, which on Monday came down to just over Rs 37,000 crore. Among the the three currency trading platforms, the National Stock Exchange (NSE) and MCX-SX started imposing transaction fees from on Monday. The United Stock Exchange (USE) board will meet at the end of this month to decide a fee structure. NSE will charge up to Rs 115 on every Rs 1 crore worth of trades in the currency segment, in four slabs, while MCX-SX will charge up to Rs 110 in three slabs.
Yogesh Radke, head of quantitative research at Edelweiss Capital, said: “When there are such changes, there are some initial hiccups. But volumes will adjust, like they did when STT (securities transaction tax) was imposed on equity trade a few years back. People were expecting volumes to fall. But over time, the market has adjusted to the changes and has grown.”
Delhi, Kolkata, Mumbai and South India-based brokers were involved in generating huge volumes on NSE and MCX-SX before imposition of transaction charges. Usually, NSE and MCX-SX saw average daily trades of Rs 20,000-25,000 crore each. Monday, currency derivatives of Rs 12,000 crore are traded on MCX-SX and Rs 14,000 crore on NSE. On USE, volumes were a little over Rs 11,000 crore.
The segment, launched in 2009, saw a gradual increase in volumes as exchanges did not impose any charges in their attempt to attract more players. A fight between NSE and MCX-SX, however, saw the issue being challenged at the Competition Commission of India, which ruled that NSE should impose transaction charges.
A fall in volumes, however, will be bad news for market players, already bearing the brunt of a growing rupee market in Dubai. The rupee-dollar futures contracts generated in daily average trades are around Rs 1,500 crore on the DGCX. Volumes are hitting new records every month and rupee-dollar contracts have become the fastest growing derivative instruments on DGCX, with a rise of 16 times compared to last year. The Indian currency contracts account for 60 per cent of the total trading volumes on DGCX and 90 per cent of the overall currency futures segment.