India International Exchange plans to waive fee to lure rupee trade home

As India works to bring some of the burgeoning offshore rupee trading back home, the exchange that will likely spearhead the move says it’s prepared to cut trading fees to zero to take on overseas rivals.

The India International Exchange (IFSC) Ltd., also known as India INX, plans to waive commissions initially, a strategy it used to bolster liquidity in its equity and gold derivatives contracts.

“We will compete with lowest-cost access,” V. Balasubramaniam, chief executive at the bourse based in the tax-incentive zone in the GIFT City, said in an interview. “For us, the cost of running a market is much lower as manpower and infrastructure costs at the IFSC are small.”

Trading charges at the Dubai Gold & Commodities Exchange range from $0.03 to $0.1 per contract, per side on various rupee-related contracts, according to its website. The Singapore Stock Exchange charges 0.0075% of traded value as fees that exclude clearing costs.

Rupee trading onshore has been shrinking at the expense of offshore market, with volumes in London topping those in India’s financial capital Mumbai. In a bid to boost local volumes, the Reserve Bank of India this month allowed trading in rupee on venues like the IFSC and permitted banks to freely share forex rates with non-residents. Further regulatory approvals are awaited before trading starts.

The GIFT City, located in the western state of Gujarat -- the home state of Prime Minister Narendra Modi -- has been conceived as a financial hub to rival centers like Singapore and Dubai. Investors based there are exempted from levies on buying and selling of securities and capital gains tax for non-residents.

INX India, a unit of the BSE Ltd., is currently the biggest exchange in GIFT City. The National Stock Exchange of India Ltd., the nation’s top equities bourse, also has a unit in the zone.

INX has had some success with equity derivatives. The monthly traded volume for its flagship India50 contract in September totaled $34.5 billion, compared with about $46 billion clocked by Singapore’s SGX Nifty Index, according to data provided by INX.

India INX’s potential clients could include foreign portfolio investors or any overseas corporate with an exposure to the rupee and needs to hedge.

“We have a good pool of brokers connected with us in IFSC who are proprietary traders or algorithmic driven traders,” Balasubramaniam said. “All these guys will add to the medley of players who can come and trade in our markets.”