Indian Currency Market

Currency Future Market

Globalization  and  assimilation  of  financial  markets, coupled  with progressive increase of cross-border flow of capital, have transformed  the  dynamics  of  Indian  financial  markets.  This has increased the need for dynamic currency risk management. The sturdy  rise  in  India’s  foreign  trade  along  with  liberalization  in foreign  exchange  regime  has  led  to  large  inflow  of  foreign currency into the system in the form of FDI and FII investments. In  order  to  provide  a  liquid,  transparent  and  vibrant  market  for foreign  exchange  rate  risk  management,  Securities  &  Exchange Board of India (SEBI) and Reserve Bank of India (RBI) have allowed  trading in currency futures on stock exchanges for the first time in India, initially based on the USDINR exchange rate and subsequently on three other currency pairs – EURINR, GBPINR and JPYINR.  The USDINR futures contract is already being traded on MCX-SX, NSE Currency and USE Exchange with more than US$ 4 billion average daily turnover. This would  give  Indian  businesses  another  tool  for  hedging  their foreign  exchange  risk  effectively  and  efficiently  at  transparent rates  on  an  electronic  trading  platform.  The  primary  purpose  of exchange-traded  currency  derivatives  is to  provide  a mechanism for price risk management  and  consequently provide price  curve of  expected  future  prices  to  enable  the  industry  to  protect  its foreign currency exposure. The need for such instruments increases with increase of foreign exchange volatility.

MCX-SX & NSE Currency started live operations on October 7, 2008 by launching monthly contracts in the USDINR currency pair. Consequently, the stock exchange expanded its currency derivatives offerings to Euro-Indian Rupee (EURINR), Pound Sterling-Indian Rupee (GBPINR) and Japanese Yen-Indian Rupee (JPYINR) under the regulatory framework of Securities and Exchange Board of India (SEBI), and Reserve Bank of India (RBI).

Each of these currency contracts on MCX-SX and NSE Currency has a life of 12 months from the month in which it is launched. 

Contract Specifications for USD - INR

Symbol USDINR Instrument Type FUTCUR Unit of trading 1 (1 unit denotes 1000 USD) Underlying USD Quotation/Price Quote Rs. per USD Tick size 0.25 paise or INR 0.0025 Trading hours Monday to Friday 9:00 a.m. to 5:00 p.m. Contract trading cycle 12 month trading cycle. Last trading day Two working days prior to the last business day of the expiry month at 12:15pm. Final settlement day Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai. Base price Theoretical price on the 1st day of the contract. On all other days, DSP of the contract. Price operating range Tenure upto 6 months Tenure greater than 6 months +/-3 % of base price +/- 5% of base price Position limits Clients Trading Members Banks Higher of 6% of total open interest or USD 10 million Higher of 15% of the total open interest or USD 50 million Higher of 15% of the total open interest or USD 100 million Minimum initial margin 1.75% on first day & 1% thereafter. Extreme loss margin 1% of MTM value of gross open position. Calendar spreads Rs. 400/- for a spread of 1 month, Rs. 500/- for a spread of 2 months, Rs. 800/- for a spread of 3 months & Rs. 1000/- for a spread of 4 months or more Settlement Daily settlement : T + 1 Final settlement : T + 2 Mode of settlement Cash settled in Indian Rupees Daily settlement price (DSP) DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time. Final settlement price (FSP) RBI reference rate

Contract Specifications for Euro-INR

Symbol EURINR Instrument Type FUTCUR Unit of trading 1 (1 unit denotes 1000 EURO) Underlying EURO Quotation/Price Quote Rs. per EUR Tick size 0.25 paise or INR 0.0025 Trading hours Monday to Friday 9:00 a.m. to 5:00 p.m. Contract trading cycle 12 month trading cycle. Settlement price RBI Reference Rate on the date of expiry Last trading day Two working days prior to the last business day of the expiry month at 12:15pm. Final settlement day Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai. Base price Theoretical price on the 1st day of the contract. On all other days, DSP of the contract Price operating range Tenure upto 6 months Tenure greater than 6 months +/-3 % of base price +/- 5% of base price Position limits Clients Trading Members Banks Higher of 6% of total open interest or EUR 5 million Higher of 15% of the total open interest or EUR 25 million Higher of 15% of the total open interest or EUR 50 million Minimum initial margin 2.8% on First day & 2% thereafter Extreme loss margin 0.3% of MTM value of gross open positions. Calendar spreads Rs.700/- for a spread of 1 month, 1000/- for a spread of 2 months, Rs.1500/- for a spread of 3 months or more Settlement Daily settlement : T + 1 Final settlement : T + 2 Mode of settlement Cash settled in Indian Rupees Daily settlement price (DSP) DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time. Final settlement price (FSP) RBI reference rate

Contract Specifications for Pound Sterling-INR

Symbol GBPINR Instrument Type FUTCUR Unit of trading 1 (1 unit denotes 1000 POUND STERLING) Underlying POUND STERLING Quotation/Price Quote Rs. per GBP Tick size 0.25 paise or INR 0.0025 Trading hours Monday to Friday 9:00 a.m. to 5:00 p.m. Contract trading cycle 12 month trading cycle. Settlement price Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro. Last trading day Two working days prior to the last business day of the expiry month at 12:15pm. Final settlement day Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai. Base price Theoretical price on the 1st day of the contract. On all other days, DSP of the contract Price operating range Tenure upto 6 months Tenure greater than 6 months +/-3 % of base price +/- 5% of base price Position limits Clients Trading Members Banks Higher of 6% of total open interest or GBP 5 million Higher of 15% of the total open interest or GBP 25 million Higher of 15% of the total open interest or GBP 50 million Minimum initial margin 3.2% on first day & 2% thereafter Extreme loss margin 0.5% of MTM value of gross open positions. Calendar spreads Rs.1500/- for a spread of 1 month, 1800/- for a spread of 2 months, Rs.2000/- for a spread of 3 months or more Settlement Daily settlement : T + 1 Final settlement : T + 2 Mode of settlement Cash settled in Indian Rupees Daily settlement price (DSP) DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time. Final settlement price (FSP) Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro.

Contract Specifications for Japanese Yen-INR Symbol JPYINR Instrument Type FUTCUR Unit of trading 1 (1 unit denotes 100000 YEN) Underlying JPY Quotation/Price Quote Rs per 100 YEN Tick size 0.25 paise or INR 0.0025 Trading hours Monday to Friday 9:00 a.m. to 5:00 p.m. Contract trading cycle 12 month trading cycle. Settlement price Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro. Last trading day Two working days prior to the last business day of the expiry month at 12:15pm. Final settlement day Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai. Base price Theoretical price on the 1st day of the contract. On all other days, DSP of the contract Price operating range Tenure upto 6 months Tenure greater than 6 months +/-3 % of base price +/- 5% of base price Position limits Clients Trading Members Banks Higher of 6% of total open interest or JPY 200 million Higher of 15% of the total open interest or JPY 1000 million Higher of 15% of the total open interest or JPY 2000 million Minimum initial margin 4.50% on first day & 2.30% thereafter Extreme loss margin 0.7% of MTM value of gross open positions. Calendar spreads Rs. 600 for a spread of 1 month; Rs 1000 for a spread of 2 months and Rs 1500 for a spread of 3 months or more Settlement Daily settlement : T + 1 Final settlement : T + 2 Mode of settlement Cash settled in Indian Rupees Daily settlement price (DSP) DSP shall be calculated on the basis of the last half an hour weighted average price of such contract or such other price as may be decided by the relevant authority from time to time. Final settlement price (FSP) Exchange rate published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro.

**Above mentioned data is collected from the MCX-SX website.

Legal disclaimer and risk disclosure

This overview can be used only for informational purposes. Fx Mudra and Its people are not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.