The five-month-old exchange traded currency futures market is set to witness competition, rising volumes and innovations with the United Stock Exchange of India gearing up to launch the product in April.
USEI, the fourth exchange with interest in currency futures, has already received the approval from the Securities and Exchange Board of India to launch the platform.
Three exchanges - the Bombay Stock Exchange, the National Stock Exchange and MCX-SX - have already launched currency futures. While BSE has not made much headway, NSE and MCX-SX are running neck-and-neck in market share.
USEI is promoted by JayPee Capital Market Services, MMTC and a number of public and private sector banks. JayPee will be an anchor investor with a little over 26 per cent stake in USEI, while MMTC will hold 15 per cent in the exchange. The JayPee group is a brokerage house and is among the biggest volume drivers on derivatives in all segments and its market share in the currency segment is more than 10 per cent on both exchanges.
With the entry of USEI, where its partner banks have agreed to hedge their positions, currency futures market is expected to grow in breadth and depth. The existing exchanges have already approached Sebi to permit them to have evening sessions in line with commodity futures.
Currency is traded round-the-clock in international markets and will help more hedgers to come on exchange traded derivatives.
While USEI is relying on its anchor investor's track record in derivatives as well as on partner banks and MMTC to bring their hedging business on the floor of the exchange, MCX-SX is tying up with trade bodies in different parts of India to ensure that their members hedged their currency exposures on its platform.
Most of the currency hedging is done in the over-the-counter market, where banks participate, and deals here are bilateral. The Clearing Corporation of India is planning a platform where banks can report their currency forward deals that can be guaranteed and settled by it. Since these deals are likely to have larger contracts, exchanges have requested Sebi to revise upward the minimum contract size, which is $1,000 at present.
The total average daily volume on currency exchanges is over $500 million (Rs 2,500-2,600 crore) with an open interest (OI) of 500,000 contracts.
