Currency derivatives lose momentum, USE hit hardest

The currency derivatives trading, once touted as the Indian capital market's next big thing, seems to be bleeding business and the newest kid on the block, the United Stock Exchange, is taking the maximum hit.

As per the market regulator Sebi's latest monthly bulletin, the one-month turnover of currency derivatives at NSE declined by 33 per cent to Rs 2,73,114 crore in October.

The decline was larger for rival MCX-SX at 37.1 per cent, but the losses were much higher at 63.5 per cent at the United Stock Exchange (USE), the third player in the segment, for the same month, the Sebi data shows.

NSE was the first exchange to foray into this segment in August 2008, followed by BSE and MCX-SX in October that year.

While BSE stopped all its its operations in the Currency Derivatives Segment in April 2010, the USE entered this market in September 2010. The BSE is a major shareholder in the USE.

The decline at USE appears much sharper, when seen in the context of the exchange's initial period trade volumes.

The USE had launched its trading on September 20, 2010 with opening-day volume of 9.88 million contracts, a world record for the first-day trading at a new exchange.

Thereafter, the month-on-month volume grew for quite a few months, but has declined sharply in the recent past.

The USE clocked a record-high trade of over Rs 45,000 crore on its first day, but its daily trade value was just Rs 264.46 crore in the last trading session on December 23.

The monthly trade volumes have also declined sharply in the past four months, which has come as a big surprise for the market players as the USE remains the only exchange not charging any transaction fees on currency derivatives trade.

The two rival exchanges, NSE and MCX-SX, started levying transaction charges on currency derivatives in August.

Incidentally, the USE volumes have been declining sharply since that month, thus defying the theory of zero transaction fee regime being good for this nascent-stage segment.

There are no official words, but speculations are rife that the decline in the USE's trade volumes was because of an ongoing Sebi probe into the state of affairs at the bourse.

Earlier in October, T S Narayanasami had quit as the Managing Director of the USE, and the industry sources had attributed his resignation to the differences he had with some other senior management personnel and certain promoters.

The differences are said to have been over the levy of transaction charges, among other issues.

Also, there have been reports about a conflict of interest and a possible breach of fair-trade practices at the USE due to one of its largest shareholders, Jaypee Capital, also being a major trader on the exchange.

The reports had said that about 80 per cent of trade volumes were coming from Jaypee Capital alone.

Industry sources say that the trade volumes might have declined because of Jaypee capital limiting its exposure due to the Sebi probe.