Currency futures get RBI panel's go-ahead

A Reserve Bank of India (RBI) panel has recommended the introduction of trading in currency futures to enable market participants to better manage currency risk exposures.

RBI's internal working group has suggested setting up of dedicated exchanges for currency futures to ensure that regulatory and supervisory control rests solely with the central bank.

It has also suggested initially allowing only resident entities to participate in currency futures without any limits.

The group suggested that once the systems were in place, only two categories of entities outside India "� foreign institutional investors (FIIs) and non-resident Indians (NRIs) "� could be allowed in the market only as hedgers through designated banks. It has recommended the imposition of suitable position limits on FIIs and NRIs.

In the initial phase to encourage proper price discovery and and retail participation, the group has suggested that a single contract should have a notional value of $1,000 and currency futures maturing in the first 12 calendar months could be offered.

The group advocated that the ownership of the exchanges must be well diversified. The shareholders and directors must satisfy the "fit and proper" criteria.

Foreign direct investment (FDI) should not exceed the limits prescribed for financial infrastructure companies, as in the case of stock exchanges.

Additionally, no person would be permitted to hold more than 5 per cent in the equity capital of the currency futures exchange. In stock exchanges, FDI is capped at 26 per cent and a separate ceiling of 25 per cent for FII investments has been stipulated.

Eligible exchanges would also need to have adequate financial resources to undertake information technology (IT) upgrade from time to time and interested existing stock and commodity exchanges would have to set up currency futures exchange as a separate entity.

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FUTURE PERFECT

RBI's internal working group has suggested setting up of dedicated exchanges for currency futures

The group advocated that the ownership of the exchanges must be well diversified

The panel said interested existing stock and commodity exchanges would have to set up currency futures exchange as a separate entity