Business Daily from THE HINDU group of publications
Thursday, Aug 07, 2008
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Business Daily from THE HINDU group of publications Thursday, Aug 07, 2008 ePaper | Mobile/PDA Version | Audio |
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Forex Money & Banking - Derivatives Markets Exchange-traded futures to begin with Re-$ contracts Prior approval of regulators needed Contract size is $1,000; maturity not more than 12 months. Eligibility criteria for participating banks spelt out Our Bureau Mumbai, Aug 6 After months of deliberations, both the Securities and Exchange Board of India and the Reserve Bank of India, on Wednesday issued final guidelines for launching exchange traded currency futures. Stock exchanges can now start currency futures after obtaining approval from both the regulators. According to the guidelines, banks planning to enter trading in currency futures should have a minimum net worth Rs 500 crore and a capital adequacy of 10 per cent. They should have made net profits in the past three years and their net non-performing assets should not exceed more than three per cent. Currency derivatives or currency futures are standardised foreign exchange derivative contracts traded on a stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract. Settlement in rupeesOnly persons resident in India are eligible to participate in the currency derivative and it will only have US dollar-Indian rupee contracts, said a RBI circular. The size of each contract will be $1,000 and the contract will be quoted and settled in Indian rupees. The settlement price shall be the Reserve Bank of India’s reference rate on the last trading day. The maturity of the contracts shall not exceed 12 months. The trading of currency futures shall be subject to maintaining initial, extreme loss and calendar spread margins and the clearing houses of the exchanges will ensure maintenance of such margins as per capital market regulator’s guidelines issued from time to time. Trading members have been prescribed a position limit of $ 25 million across all contracts. “The gross open position of a trading member, across all contracts, shall not exceed 15 per cent of the total open interest or $25 million, whichever is higher,” said a Sebi circular. However, the gross open position of a trading member, which is a bank, across all contracts, shall not exceed 15 per cent of the total open interest or $ 100 million, whichever is higher, added SEBI. Captive businessMost banks would be interested in becoming members as it means captive business for them, said a senior official from a large public sector bank. “We have been doing it through the OTC market until now. Now we can do offer exchange-traded products to our clients. We don’t have to go to brokers,” the official said. Banks may set up a subsidiary for the currency traded futures, as it is a new activity, said another bank official. The Reserve Bank of India may from time to time modify the eligibility criteria for the participants, modify participant-wise position limits, prescribe margins or impose specific margins for identified participants. More Stories on : Forex | Derivatives Markets
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