RBI to allow currency options trading within a week

The Reserve Bank is likely to allow trading of currency options on bourses within a week, a senior RBI official said today.

"Maybe another week or so (for the announcement)," RBI Chief General Manager Foreign Exchange Department (Trade) G Jaganmohan Rao told reporters here today.

"As of now, they (currency options) are over-the-counter products. Soon, we will allow them on exchange platforms," Rao said, adding that the system will be regulated by the Securities and Exchange Board of India (Sebi).

He said that the decision was taken by a joint committee of the central bank and market regulator Sebi after more than a year of discussions.

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.

Rao said the actual roll-out of currency options trading will happen after Sebi decides on trading norms.

All exchanges approved by Sebi will be allowed to trade the derivative. To begin with, it will be in a pair of US dollar and the Indian rupee.

Sebi had launched currency derivatives in the form of currency futures in India in August 2008, a month before the global financial crisis hit the world.

Initially, the currency futures were limited to rupee- dollar only, but later they were extended to other pairs.

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, Rao said, "By doing that, we will have another option in our pocket. Companies and exporters both will benefit."