RBI to allow currency options within a week

The Reserve Bank of India (RBI) is likely to allow trading of currency options on bourses within a week, according to a senior RBI official. “Maybe another week or so (for the announcement),” RBI Chief General Manager Foreign Exchange Department (Trade) G Jaganmohan Rao said 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 would be regulated by the Securities and Exchange Board of India (Sebi). He said the decision was taken by a joint committee of the central bank and 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 for another currency at a pre-agreed exchange rate on a specified date.

Rao said the actual rollout of currency options trading would happen after Sebi decided 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.