MCX-SX gets Sebi, RBI approval for currency options

The nod will enable the exchange to expand its offerings in the Currency Derivatives Segment

MCX Stock Exchange (MCX-SX) today said it has received approvals from market watchdog Securities and Exchange Board of India (Sebi) and banking regulator Reserve Bank of India (RBI) to launch Currency Options.

These approvals will enable the exchange to expand its offerings in the Currency Derivatives Segment (CDS) by introducing Currency Options in the Dollar-Indian Rupee (USD-INR) currency pair.

MCX-SX said it held a successful mock trading session on August 4, 2012 and will soon announce the date of live trading of Currency Options.

Currency Options are contracts that grant the buyer of the option the right, but not the obligation, to buy or sell the underlying currency at a specified exchange rate during a specified period.

For this right, the buyer pays premium to the seller of the option. Currency futures contracts in US Dollar-Indian Rupee, Euro-Indian Rupee, Japanese Yen-Indian Rupee and British Pound-Indian Rupee pairs are already traded on MCX-SX.

MCX-SX, whose application for a full-fledged stock exchange was recently approved by Sebi, currently offers trading in only currency futures.

It has witnessed a steady and significant growth in currency futures turnover and open interest and continued to maintain its leadership in currency futures with a market share of 43.57% in the last fiscal (FY11-12).

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 2012.

The MCX-SX currency futures platform is supported by a strong membership base of 751 members and witnesses nationwide participation from 714 towns and cities across India, the exchange said.

Commenting on the latest development MCX-SX MD and CEO Joseph Massey said: "We thank SEBI and RBI for allowing us to introduce Currency Options on our exchange. Options have the comparative advantage of maintaining a certain degree of flexibility in hedging.

"Introduction of this product completes the spectrum of hedging instruments available on the MCX-SX currency segment and adds further efficiency to risk mitigation mechanism in USD-INR".

The Exchange is used by SMEs, treasury of large corporates (importers and exporters), banks, institutions and individuals involved in forex transactions, among others.

Options would help in transparent price discovery, effective risk management, hedging, trading, creating a competitive business environment and cost-effective protection from fluctuation in the forex rates, experts said.

MCX-SX launched currency futures trading in USD-INR contracts in October 2008, while it launched trading in three new currency pairs in January 2010.