The MCX-SX, which is making a late entry in the currency options trading segment, has opted to differentiate its product from that of the National Stock Exchange and the United Stock Exchange to attract traders on its platform. While there is not much room for cutting prices, product differentiation will be a key strategy among stock exchanges in India to gain trader attention.
The MCX-SX, which will launch currency options from tomorrow, has kept the tick size of the contract at 10 basis points (bps) compared to 25 bps the other two exchanges follow. Tick size is the minimum fluctuation on a contract or the smallest move a market can make during a trade.
The Securities and Exchange Board of India (Sebi) last month allowed MCX-SX to operate as a full-fledged exchange and offer more products.
Joseph Massey, managing director & chief executive officer, MCX-SX, said, “The innovation in currency options contract is in line with our philosophy to introduce products based on a consultative process with industry and feedback from market participants. The differentiation introduced in currency options will offer the most efficient product for our participants.”
According to MCX-SX, the smaller tick size of 10 bps would ensure better price discovery, increased hedge effectiveness and cost-effective risk management for the spectrum of stakeholders. Additionally, the smaller tick size offers opportunities for ease of entry and exit to the participants and reduced financial impact in situations where market moves against expectations.
The European style call and put options on USD-INR will have a lot size of $1,000 per contract and quoted and settled in Indian rupees. The exchange will introduce three monthly serial contracts followed by one quarterly contract. All outstanding positions of these contracts will be settled on the Reserve Bank of India reference rates. The market timings will be from 9 am to 5 pm from Monday to Friday, MCX- SX said.
MCX-SX had over 43 per cent market share in currency trading in the last financial year (2011-12). The average daily turnover has increased from Rs 324.78 crore during its first month of operations to Rs 13,530.47 crore at the end of July.