New currency pairs debut with a bang

Exchange-traded currency derivatives registered a significant jump in volume today with the introduction of three non-dollar contracts.

Futures contracts in euro, yen and pound sterling registered a combined volume of nearly Rs 4,000 crore on their first day on the MCX Stock Exchange (MCX-SX) and the National Stock Exchange (NSE). Of the three currencies, euro was the clear favourite. Rupee-dollar contracts worth over Rs 24,500 crore were traded on the MCX-SX and the NSE today, taking the total volumes in the exchange-traded currency futures market to Rs 28,500 crore. This market has now become bigger than the cash segment of the equity market, which recorded average volumes of Rs 20,000 crore last month.

Currency derivatives, launched in India in August 2008, allow hedging against fluctuations in value of different currencies. Exporters, companies and retail investors account for a major chunk of the volumes. According to estimates, banks are not very active in this market and account for only a fifth of the total volumes. Currency derivatives are traded on the NSE and the MCX-SX.

While rupee-dollar contracts have been there for quite some time, the market regulator approved rupee-euro, rupee-yen and rupee-pound sterling contracts a few days ago. The currency derivatives segment has been making rapid progress, with daily volume on the two exchanges almost on a par with that of the over-the-counter market.

The MCX-SX reported a volume of Rs 2,721 crore in the non-dollar segment. Of this, the rupee-euro accounted for more than half, or Rs 1,417 crore. The trend was similar on the NSE, where euro, yen and pound sterling contracts worth Rs 1,277 crore were traded. Of this, the rupee-euro contracts accounted for trades worth Rs 1,173 crore.

Market experts said the trend was not surprising as the euro was the most popular currency in India after the dollar. “A significant chunk of India’s trade is in euro and hence the currency finds many takers,” said Satyajit Kanjilal, chief executive of Forexserve. “Many companies will be ready to trade in euro, and, hence, liquidity will not be an issue,” he said. Kanjilal, however, said even yen and pound sterling would clock impressive volumes.

Pramit Brahmbhatt, chief executive, Alpari Forex (India), said India’s trade with European countries was increasingly rapidly and hence rupee-euro contracts would “help exporters and importers who have interest in the European market”. The yen, being a more volatile currency, will provides more speculative opportunities to retail traders, says Brahmbhatt.