Currency exchanges' volumes continue to head downwards

Average monthly turnover at currency bourses has declined more than 75% between June and November

BSE, the latest bourse to enter the already-crowded currency derivative trading space, might not have done so at a very opportune time. The average monthly turnover at currency bourses declined 75 per cent between June and November, with volumes falling each month. Asia’s oldest bourse, BSE, recently become the fourth one to offer trading in currency derivatives, to compete with market leader  National Stock Exchange (NSE), MCX-SX and United Stock Exchange (USE).

The combined monthly turnover of the three exchanges averaged Rs 15,147 crore in November, a fraction of the Rs 64,039 crore in June.

Currency exchanges help investors hedge their currency exposures by offering trading between two currency pairs, such as the dollar and the rupee. Experts attribute the drastic fall in currency volumes to the steps taken by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) in July to stem the fall in the rupee. “The drop in volumes can clearly be attributed to the steps taken by the regulators that curb exposure and increase margin requirements. Also, there are restrictions on banks that stop them from arbitrage between the OTC and the currency derivatives,” said Manis Thanawala, director, Greenback Forex.

Both, the central bank and Sebi, had issued circulars in July that imposed strict curbs such as doubling of margin requirements and ceiling on position limits on exchange traded currency derivatives.

Abhishek Goenka, founder and chief executive officer, India Forex Advisors, said. Currency trading volumes could have increased, given the volatility in the currency. However, given the restrictions on trading, volumes have taken a hit. “Arbitrage activity has clearly come down,” he said.

The rupee, which averaged around 58 against the dollar, had dropped to a low of 68.83 during August-end, amid heightened volatility, due to concerns surrounding a widening current account deficit.

Average monthly turnover at NSE’s currency derivatives segment declined from Rs 38,766 crore in June to Rs 9,895 crore in November, data shows. That of MCX-SX fell from Rs 24,144 crore in June to Rs 4,414 crore last month. USE saw a drop from Rs 1,129 crore to Rs 838 crore during this period.

 

Thanawala believes the trading volumes could see an up tick after the curbs get lifted. “Exchanges offer a good platform for currency trading. Volumes will pick up after some of the restrictions get rolled back,” he said.