NEW DELHI: India's National Stock Exchange (NSE) and United Stock Exchange of India (USE) will commence trading in US dollar-Indian rupee currency options from Friday, both the bourses announced separately on Thursday.
Currency option is a derivative instrument that gives the owner the right, but not the obligation, to exchange money denominated in one currency into another at a pre-agreed exchange rate on a specified date.
While the NSE is currently offering options in the dollar-rupee pair with three consecutive monthly contracts and one quarterly contract expiring in March, the USE is offering options for expiry in the three near months and three quarters going ahead.
The USE offer allows users the flexibility to take price insurance up to one-year on foreign exchange, the bourse said.
"We are very excited to bring this new product to traders, investors and hedgers across the country. We hope that corporate entities and SMEs with currency exposure utilize this powerful product for their hedging requirements." said TS Narayanasami, Managing Director and Chief Executive Officer of United Stock Exchange.
India's market regulator Securities and Exchange Board of India (SEBI) had given approval to both the exchanges to trade in options on dollar-rupee pair on Oct. 11.
While NSE officials at the time said trading in currency options is likely to start within 10 days, after all the approvals are in place, the USE conducted a mock trading on Oct. 16.
MCX-SX, yet another major player in currency trading in India, is also awaiting SEBI approval for dealing in options, a move that will provide an alternative to investors for hedging against currency fluctuations
In July this year, SEBI allowed bourses to introduce currency options on the dollar pairing with the rupee. In August 2008, the market regulator allowed exchanges to introduce currency futures.
At present, futures trading in four currency pairs are being offered through the exchanges. These pairs are dollar-rupee, euro-rupee, yen-rupee and pound-rupee.
The Reserve Bank of India (RBI) and SEBI jointly regulate these products. While the RBI approves the products, SEBI decides on the trading platforms.
Globally, the currency derivatives market is bigger than the equities market. Experts believe that there are greater prospects for growth in currency segment in India, which is a fraction of the size of the equity markets here.
The USE, which started its operations on Sept. 20 by offering trading in currency futures, has a unique public-private partnership (PPP) with equity participation by both PSUs and the private sector banks.
Apart from banks, Jaypee Capital, MMTC and Indian Potash have also invested in the USE. Bombay Stock Exchange is also a strategic partner of the exchange as it holds a 15 percent stake and all its members are connected to the new USE platform.
© Arab News 2010
