Paving the way for the commencement of exchange-traded currency futures in the country, the Reserve Bank of India and the Securities and Exchange Board of India (Sebi) today issued operational guidelines.
The next step would be to approve exchanges as platform for trading. So far, the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the Multi-Commodity Exchange (MCX) have applied for permission to Sebi.
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The circular lays down eligibility norms for existing and new exchanges and their clearing corporations/houses, eligibility criteria for their members, product design, risk management measures, surveillance mechanism and other related issues.
Initially, foreign institutional investors (FIIs) and non-resident Indians (NRIs) would not be permitted to participate in the currency futures market. Domestic banks would require prior permission from RBI to participate either in the trading, clearing and settlement or other related segments of the trade. Trading members, in case of brokers, would require approved users and sales personnel who have certification as applicable to exchange traded equity derivatives.
At the outset, the minimum size of the currency futures would be $1,000 and the contract would be quoted in rupee terms. The settlement price would be the RBI reference rate on the date of expiry, the guidelines said. The gross open position of a trading member, across all contracts, cannot exceed 15 per cent of the total open interest or $25 million, whichever is higher.
For banks, however, the gross open position of a trading member, across all contracts, cannot be more than 15 per cent of the total open interest or $100 million, whichever is higher.
While an individual entering into a forward contract in over-the-counter (OTC) deals agrees to transact at a forward price on a future date, mark-to-market obligations would be settled on a daily basis in the case of an exchange traded futures contract.
