NSE, BSE & Financial Tech have already applied to Sebi for the same.
Brokers are readying themselves to enter the exchange-traded currency futures segment in September, even as the Securities and Exchange Board of India (Sebi) is in the process of putting together operational guidelines to kickstart the process.
Several big brokerage houses, including Religare, Motilal Oswal and Karvy, have expressed their intention to offer currency futures broking to the National Stock Exchange (NSE). In turn, NSE along with the Bombay Stock Exchange (BSE) and Financial Technologies Group has applied to Sebi for starting currency futures.
Sebi, however, has not yet announced which exchange will start currency futures. Nevertheless, NSE has already done some roadshows to familiarise brokers with details. If permitted, NSE may start currency futures trading as a separate segment, said a source.
For currency futures, brokers will have a separate subsidiary, which will become a member of the currency derivatives segment. A standing technical committee, set up jointly by the Reserve Bank of India and Sebi, had come out with the guidelines for launching currency futures in May.
These guidelines say that membership of currency futures should be separate from the membership of the equity derivative segment or the cash segment of a recognised stock exchange. The report had also spelt out the eligibility norms for clearing members.
In fact, Karvy has already begun the process of putting together a team and building up research capabilities in this area. The brokerage and commissions charged would be similar to those charged for futures with equity as the underlying.
According to a broker, for the retail clients, the brokerage could work out to Rs 15 to Rs 55 a contract, while for the institutional clients it could work out to Rs 5 to Rs 10 a contract. As per the guidelines, the contract size is $1,000.
Trading members should have a balance-sheet networth of Rs 1 crore, while clearing members must maintain a networth of Rs 10 crore. For clearing members, the minimum liquid networth is Rs 50 lakh, the NSE has said in its presentation. The market timings will be from 9 am to 5 pm.
The market regulator will approve the members, while a joint committee of Sebi and RBI will oversee the entire process as far as regulation is concerned. In June, the Sebi board had approved the policy as well as the regulatory framework for establishment of exchange-traded currency futures.
Industry sources feel that most brokers, who currently offer commodity broking, are also likely to offer currency futures broking services. People trading in commodities would look at hedging against currency risk because of the nature of the business. “This will benefit those companies which hedge currency risks for export, import and inward remittance purposes,” said Ashok Mittal, vice-president and country head, Karvy Comtrade.
Brokers feel that small and medium enterprises, which have been reporting forex losses, may comprise a major chunk of the market. In the case of an exchange-traded futures contract, mark-to-market obligations are settled on a daily basis.
Since profits/losses in the futures market are collected and paid on a daily basis, the scope of building up mark-to-market losses in the books of various participants gets limited, according to the RBI-Sebi panel report.
Other participants will be banks and clients who can do arbitrage between the OTC forwards, currency forwards and non-deliverable forwards traded offshore (primarily in Singapore and Hong Kong).
The daily average turnover of the Indian forex market stands at $34 billion, and has grown at a compounded annual growth rate (CAGR) of 37 per cent over the last seven years.
