Currency futures to see growth, competition with USEI's April entry

The five-month-old exchange traded currency futures market is set to witness competition, rising volumes and innovations with the United Stock Exchange of India (USEI) gearing up to launch the product in April.

USEI, the fourth exchange with interest in currency futures, has already received the approval from the Securities and Exchange Board of India (Sebi) to launch the platform.

Three exchanges – the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) and MCX-SX — have already launched currency futures. While BSE has not made much headway, NSE and MCX-SX are running neck-and-neck in market share.

USEI is promoted by JayPee Capital Market Services, MMTC and a number of public and private sector banks. JayPee will be an anchor investor with a little over 26 per cent stake in USEI, while MMTC will hold 15 per cent in the exchange. The JayPee group is a brokerage house and is among the biggest volume drivers on derivatives in all segments and its market share in the currency segment is more than 10 per cent on both exchanges.

With the entry of USEI, where its partner banks have agreed to hedge their positions, currency futures market is expected to grow in breadth and depth. The existing exchanges have already approached Sebi to permit them to have evening sessions in line with commodity futures. Currency is traded round-the-clock in international markets and will help more hedgers to come on exchange traded derivatives.
 

IN A NUTSHELL
Date	From	To	NSE		MCX
			Open Int #	Value*	Open Int #	Value*
Week 1	1-Jan-09	2-Jan-09	186262	76707.04	129063	75978.23
Week 2	5-Jan-09	9-Jan-09	174570	115220.01	117205	120995.97
Week 3	12-Jan-09	16-Jan-09	195773	108095.52	129608	115946.98
Week 4	19-Jan-09	23-Jan-09	273072	126589.42	188588	130527.80
Week 5	27-Jan-09	30-Jan-09	249965	152566.68	236852	143297.78
Week 1	2-Feb-09	4-Feb-09	249965	129083.87	236852	129924.19
* Average Value for the Week in Rs lakhs,  # at the end of the week

While USEI is relying on its anchor investor’s track record in derivatives as well as on partner banks and MMTC to bring their hedging business on the floor of the exchange, MCX-SX is tying up with trade bodies in different parts of India to ensure that their members hedged their currency exposures on its platform.

Most of the currency hedging is done in the over-the-counter (OTC) market, where banks participate, and deals here are bilateral. The Clearing Corporation of India (CCIL) is planning a platform where banks can report their currency forward deals that can be guaranteed and settled by it. Since these deals are likely to have larger contracts, exchanges have requested Sebi to revise upward the minimum contract size, which is $1,000 at present.

The total average daily volume on currency exchanges is over $500 million (Rs 2,500-2,600 crore) with an open interest (OI) of 5 lakh contracts.