Futures trading in Indian currencies is set to be a reality soon. The Securities and Exchange Board of India (Sebi) is expected to clear the applications of the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the Multi Commodity Exchange (MCX) for starting currency futures at its board meeting on August 13. Trading in currency futures will, however, become operational once the applicants complete all formalities and put the software and the hardware in place, said a source close to the development.
At present, Indian traders and investors can hedge their currency risks in over-the-counter (OTC) products such as currency forwards, swaps and options. A joint committee of the Reserve Bank of India (RBI) and Sebi recently decided to allow exchange-traded currency futures in the country to provide traders with greater flexibility in manage their currency risks dynamically.
The currency futures market will function subject to the directions, guidelines and instructions issued by RBI. Sebi will deal with issues related to trading platforms, contracts, memberships, among others. At the initial stage, currency futures will be permited in the US dollars and the Indian rupee. The minimum contract size will be $1,000, which will be settled in the Indian currency.
The term of the contracts will not exceed 12 months.