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Volumes in the currency derivatives market have fallen sharply since the Securities and Exchange Board of India (Sebi) stepped in last week to curb speculative trades, even as some commodity brokers were being probed for possibly manipulations in forex trading.
The data shows average daily volumes for currency options have fallen 79 per cent for one of the exchanges so far in July, but another bourse have witnessed a hefty drop of only 35 per cent.
In the futures segment also, the fall in average daily volume is very divergent within the two exchanges from 60 per cent in one bourse to 42 per cent at the other. These trends are in sharp contrast to those witnessed till last month.
While the volumes have been on the downward path since the beginning of the month, a much steeper fall has been noticed since July 11, when Sebi's orders for curtailing the exposure of brokers and traders and increasing their margins for forex's future and options trade came into effect.
The volumes fell even more sharply in today's trade following reports that possible forex derivative manipulation have come under regulatory scanner.
According to sources, at least four commodity brokers, including one from a large brokerage group, are being probed for trading through separate client codes -- other than their allotted Unique Client Codes (UCC) -- to conceal their overall positions and avoid the curbs imposed by Sebi. They are suspected to be conducting trades through benami entities to avoid the reduced position limits. The regulators are also looking into possibility of increased manipulation in forex spot and derivative markets ever since rupee embarked on its current downward spiral. It is suspected that brokers and traders might also be indulging in unauthorised trading in the spot forex market, by luring gullible investors to place bets on currency pairs on hopes that rupee is going to touch even lower levels. While it is RBI that mainly regulates the forex market, the currency derivatives come under Sebi's jurisdictions and they are traded on the stock exchanges. Currency derivative trading allows traders and investors to take forward views on various currency pairs, including rupee-dollar. In recent times, there have been apprehensions that large-scale speculations on currency pairs is adding to the downward pressure on the rupee. Sebi has reduced the exposure that brokers and their clients can take on currency derivatives and also doubled their margins on dollar-rupee contracts. The exposure to all currency contracts for a broker has been capped at 15 per cent of their overall exposure, or USD 50 million, whichever is lower. For clients, this cap would be 6 per cent, or USD 10 million, whichever is lower.
