Currency Derivatives at BSE

CURRENCY DERIVATIVES AT BSE (Bombay Stock Exchange Limited)

RBI and SEBI jointly constituted a Standing Technical Committee to analyze the Currency Forward and Future market around the world and lay down the guidelines to introduce Exchange Traded Currency Future in Indian Market. The Committee submitted its report on Exchange Traded Currency Futures on May 29, 2008. Further RBI and SEBI also issued circulars in this regard on August 06, 2008.Currently India is a USD 34 billion OTC market, where all the major currencies like USD, EURO, YEN, Pound, Swiss Franc etc. are trading in OTC market. With the help of electronic trading and efficient risk management systems, Exchange traded currency future will help to get transparency and efficiency in price discovery, elimination of counterparty credit risk, access to all types of market participants, standardized products and transparent trading platform. Banks are also allowed to become members of this segment on the Exchange and this provides them new opportunity in this market segment.BSE is offering Currency Futures (US Dollar- Indian Rupee contract only at present) through its Currency Derivatives Segment christened BSE-CDX.Currency hedging in India will no longer be limited to the over-the-counter (OTC) products, such as forwards, swaps and options. As this market has huge potential. of integration of the Indian economy with the rest of the world, with the ongoing development of financial markets, introducing currency derivatives will provide one more platform alongside the OTC currency markets.

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Members
By having wider membership and bringing together a large number of interested parties, the futures market provides liquidity, making transactions possible and providing immediate information on prices. As per RBI guidelines, currency futures shall have the following features :
Only USD-INR contracts are allowed to be traded.
The size of each contract shall be USD 1000.
The contracts shall be quoted and settled in Indian Rupees.
The maturity of the contracts shall not exceed 12 months.
The settlement price shall be the Reserve Bank's Reference Rate on the last trading day.

Membership
The membership of the currency futures market shall be separate from the membership of the equity derivative segment or the cash segment. Membership for both trading and clearing, in the currency futures market shall be subject to the guidelines issued by the SEBI.
Banks authorized by the Reserve Bank of India under section 10 of the Foreign Exchange Management Act, 1999 as 'AD Category - I bank' are permitted to become trading and clearing members of the currency futures market, on their own account and on behalf of their clients, subject to fulfilling the following minimum prudential requirements:
Minimum net worth of Rs. 500 crores.
Minimum CRAR of 10 per cent.
Net NPA should not exceed 3 per cent.
Made net profit for last 3 years.
For more details refer to RBI guidelines.

for membership of CDX - click HERE

Other important BSE updates -
Currency Derivatives at BSE
international Programme on Demat and Depositories
What is BSE -ASBA- explained
BSE's certification on currency futures

Investors
Many investors internationally use futures more than the cash market to manage the duration of their portfolio or asset allocation because of the low upfront payments and faster transactions. They also trade in futures with the hope of making profit with arbitrage opportunity between the futures market and the underlying market. As the profits or losses in the futures market are collected and paid on a daily basis, the scope for building up of mark to market losses in the books of participants gets limited. In short, currency futures benefits to investors as :
Importers/Exporters may have some obligations in Forex market, trading in Currency Futures will help them hedge their positions. Similarly, any investor can trade in Currency Futures with or with no obligations.
The counter-party risk is eliminated as the clearing corporation guarantees the trades.
By ensuring that the best price is available to all categories of market participants, transactions are executed on a price time priority
In Currency Futures, mark to market obligations are settled on a daily basis, unlike a forward contract, which is an agreement to transact at a forward price on a future date and no money changes hands except on the maturity date.

More Faq's - click here

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