Comexes, equity bourses eye Re futures slice

Leading commodity and stock bourses have shown an interest in starting currency futures on their trading platforms.

The National Commodity and Derivatives Exchange (NCDEX), the National Stock Exchange (NSE) and the Clearing Corporation of India Limited (CCIL) have applied to the RBI for permission to start dollar-rupee futures in India.

The Reserve Bank of India's (RBI) internal committee is currently studying the proposal. Even Financial Technologies, the promoter of the Multi Commodity Exchange, has sought permission to launch the product.

Trading in currency futures is not allowed in India. The commencement of currency futures will allow importers, exporters and foreign investors to hedge their currency risks in India itself. The Dubai Gold and Commodities Exchange (DGCX) has started rupee futures trading from on Thursday.

Experts are of the opinion that the Reserve Bank can permit currency futures under the present structure. In its credit policy statement in April, the RBI had announced the setting up of a working group on currency futures to study the international models and suggest a suitable framework, in line with current legal and regulatory systems.

Jignesh Shah, managing director, FT, admitted that it had submitted a proposal to the RBI expressing an intention and preparedness to begin currency futures in India.

He said, internationally, commodity exchanges are natural platforms for currency futures and added that currencies could be traded on a separate platform in India under the RBI regulations.

There are three platforms for spot and forward currency trading in India, FX direct, Dealing 2000 and FX Clear. FX Direct belongs to the FT group, Dealing 2000 comes under Reuters and FX Clear is a CCIL platform. These three can be permitted by RBI to start currency futures under the present legal structure.

Futures transactions on exchange platforms require clearing and settlement guarantees. Dealing 2000 doesn't have a clearing mechanism, while the FT group has such a mechanism under multi commodity exchange (MCX) and CCIL has a similar mechanism as well.

The NSE is also understood to have shown an interest in starting currency futures on its stock market platform. But this may not be possible as amending the securities and contract regulations act, which is a mandatory requirement for a stock exchange to offer currency futures trading, is a lengthy process.

Bankers are also averse to the idea of currency futures on a stock exchange, as banks which directly undertake currency hedging on behalf of their clients would have to do it through stock brokers, said a senior banker.

Much depends on the opinion of RBI's internal committee, headed by its chief general manager, Salim Gangadharan. Banking circles believe that the RBI would not permit speculative trades, even if it allows currency futures. It is likely that RBI may allow the facility to those who have underlying contracts which can be hedged.

The high-powered expert committee on making Mumbai an international financial centre had cited the absence of currency futures as one of the reasons why the investors from international financial centres were staying away from Mumbai.