Market regulator the Securities and Exchanges Board of India (Sebi) today allowed exchanges to introduce currency options on US dollar pairing with rupee, a development that provides another alternative to corporates for hedging against currency fluctuations.
"It has now been decided to permit introduction of options on USD-INR spot rate on currency derivatives segment of stock exchanges," the Sebi said in a circular.
According to the circular, only USD-rupee contracts of size $1,000 would be allowed.
With this, now exchanges like NSE and MCX will have to seek regulatory approval, following which they would go live.
Currency option is a derivative instrument that gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre- agreed exchange rate on a specified date.
As per the Sebi guidelines, the trading in currency options will be from 9 am to 5 pm.
In August 2008, Sebi allowed stock exchanges to introduce currency futures, a forex derivative contract to buy or sell one currency against other on a specified future date, at a price decided in the contract.
Initially, the currency futures were limited to rupee-dollar only. But in January 2010, it was extended to three more currencies -- euro, pound and yen -- pairing with rupee.
RBI and Sebi jointly regulate these products. While RBI approves the products, Sebi decides on the trading platforms.
On the likely benefits of exchange-traded currency options, RBI Chief General Manager Foreign Exchange Department (Trade) G Jaganmohan Rao had said, "By doing that, we will have another option in our pocket. Companies and exporters both will benefit."
MCX-SX later in the evening said it will conduct mock trading tomorrow morning in currency options. Live trading, be subject to Sebi approval.
