The National Stock Exchange (NSE) on Wednesday has announced to begin the trading of forex in derivative segments from August 29. The mock trading session for forex future trading has begun from Wednesday in one-hour window in equity and derivative segment from 4:30 p.m. to 5:30 p.m., official announced here on August 20.
This new initiative of NSE will prove vital for those corporates, banks and even individual investors who want to hedge – the strategy used by investors when the prospects of market is not clear. Investors sell the stock at a set price to avoid market fluctuation – their foreign exchange risks against fluctuations in market, as per NSE official source.
NSE was keen to begin this new trading system that is available in all over the world, but not in India. This is for the first time that NSE has got the nod of Reserve Bank of India (RBI), and Security and Exchange Board of India (SEBI) to begin it just two weeks ago.
Till date the trading of forex exchange was available to some banks and authorised agencies through Over-The-Counter (OTC) market that has a huge daily turnover of an average of USD34-billion in India.
Announcing to begin foreign exchange future trading, NSE official said that it would go live with currency futures – the standardised foreign exchange contracts traded on a recognised stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the purchase or sale date – from August 29, and will organise mock trading sessions from Wednesday.
Currently, RBI has permitted to only USD-INR currency futures to be traded on the approved exchanges. According to approval, “The size of the contract will be $1,000 and the contracts will expire on the last business day of any month at 12 noon.”
It means the investors or traders can buy or purchase the Dollar-Rupee or Rupee-Dollar contracts but the last settlement would be translated into Rupees and investor will get he settled amount in Rupees only. Moreover, for purchasing any contract the investor or traders will have to pay only the 5% of total contract amounts.
For Instance, if a person buys only one contract that would be of $1000 at spot price of Rs. 40.00 for the five months expiry, he would have to pay only Rs. 2,000 (5% * 40*1000). And at the expiry time, he sells the contract, he will get the settled amount if dollar moves above Rs.40.00 otherwise have to bear loss and would have to pay the loosen amount to the operator / broker, who would be the member of NSE.
For getting the membership of brokering or operating, the interested party must have the net worth of Rs.1-crore while for getting a trading-cum-clearing membership; there should be Rs.10-crore of net worth amount.
“About 70-80% of our 1,000 odd brokers have shown interest in currency futures. Banks (most of them public sector banks), and a large number corporates have also shown interest,” an official of NSE said.
This forex future trading would be available for all except Foreign Institutional Investors (FII) and Non-Resident Indian (NRIs).
So far, only NSE has received an in-principle approval from RBI and SEBI, while other major exchanges like Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX) is waiting to get the nod.
There are nearby 334-million contracts get traded annually in exchange-traded currency derivatives segment across the world.
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