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DGCX move prompts launch of rupee futures in India

DUBAI — With the launch of rupee futures contract on the Dubai Gold and Commodities Exchange (DGCX) triggering debates on the pros and cons of allowing rupee futures in India, the Reserve Bank of India (RBI) is also reportedly pondering its introduction.

The RBI has formed an internal committee, headed by its chief general manager Salim Gangadharan, for its opinion on the necessity of currency futures in India. Taking cues from the current flexibility from RBI, stock and commodity exchanges are knocking the doors of RBI for permission to start dollar-rupee futures in India.

According to Pradeep Unni, assistant vice-president of Vision Commodities Services, DMCC, the National Commodity and Derivatives Exchange (NCDEX), the National Stock Exchange (NSE) and the Clearing Corporation of India Limited (CCIL) have applied to the RBI for permission to start dollar-rupee futures in India. On similar lines even Financial Technologies, the promoter of the Multi Commodity Exchange (MCX), has submitted a proposal to the RBI expressing an intention and preparedness to begin currency futures in India. RBI’s internal committee is currently studying the proposals in detail.

"While commodity exchanges argue that such a contract should be launched on a Commodity Exchange as internationally such contracts are traded on commodity bourses, the other contenders bet on their infrastructure, tested surveillance systems, experience in managing large volumes and their overall expertise in capital markets," he said.

There is also increased speculation that RBI is soon to come out with a circular specifying the details of a forward contract applicable to resident Indians, Unni said.

"At present, importers and exporters of goods and services are permitted to book forward contracts on the basis of declaration of an exposure and based on past performance. Furthermore, contracts booked in excess of 50 per cent of the eligible limits have to be on deliverable basis and cannot be cancelled," he added.

However to facilitate dynamic hedging of foreign exchange exposures, RBI has proposed few changes in the existing system, he pointed out. "This is in line with the details given in the Annual Policy Statement for the Year 2007-08 by the RBI. This would allow the resident individuals to manage/hedge their foreign exchange exposures, including anticipated exposures. The proposed forward contract is likely to permit resident individuals to book forward contracts without production of underlying documents up to an annual limit of $100,000, which can be freely cancelled and rebooked. In short, it is almost a futures market but with stricter regulations."

He said DGCX deserved appreciation for its pioneer efforts to launch the rupee contract accessible globally well ahead of its counterparts." It is well known fact that global investor attention is in India and is considered as most promising investor destination among the BRIC (Brazil, Russia, India and China) nations. With loads of foreign funds waiting to flow to India in the coming years, it is of utmost necessity that DGCX stabilises its first mover advantage firmly. For doing the same DGCX could take couple of steps that could make its contract, the market leader."

Unni pointed out that the DGCX rupee contract is a solution for every exporter/importer doing business with India for hedging their currency risk.

He pointed out that most successful exchanges across the globe have principally always kept in focus the needs and necessities of retail traders. "DGCX should continue to promote its contracts to every potential investor through all the media sources possible. The awareness of the very existence of the exchange has to be ascertained first. And then begins the ripple effect — more retail traders, greater liquidity, higher volumes and this would automatically bring in institutional investors."