Currency trading launched in India

More than 300 members will be eligible to participate in currency
futures trading on the National Stock Exchange of India on Friday, when
the facility gets flagged off by the Union Finance Minister, Mr P.
Chidambaram, said a top NSE official.

In order to encourage active participation in the Currency
Derivatives segment, the NSE has decided that no transaction charges
will be levied on the trades done in this segment on the exchange from
August 29 till September 30.

However, every trading member participating in currency derivatives
during the above period shall be required to make a lump-sum
contribution of Rs 500 towards an Investor Protection Fund, says an NSE
circular.

Currency futures are 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.

Only US dollar-Indian rupee contracts would be allowed. The contract
size will be of 1,000 US dollars and the tick size (minimum price
fluctuation) will be 0.25 paise.

The prices in currency derivatives segment shall be displayed,
traded and reported up to the fourth decimal place instead of up to
two. For example, Rs 42.50 shall be displayed as Rs 42.5000.


OTC contracts

The trade in currency futures will co-exist with the already
prevalent OTC market for forwards, where the banks and corporates have
been hedging their foreign currency risks so far. The OTC market has an
average daily volume of $34 billion, said the NSE. Unlike OTC contracts
that are bilateral, the exchange-traded currency futures contracts will
be transparent.

Banks are also allowed to become members of the exchange to
participate in currency futures trade. All resident Indians are allowed
to participate in currency futures, only NRIs and FIIs are not eligible
to trade.

All Group 1 securities, bank guarantees, receipts of fixed deposits
will be allowed as collaterals for the margins required to be deposited
by the investors trading in currency futures.

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