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SEBI to allow exchange-traded currency futures

Special Correspondent

To work on interest rate futures; create an exchange for small and medium enterprises

Panel suggests minimum contract size of $1,000
Common international standards for listed cos.

— PHOTO: RAJEEV BHATT

RISK REDUCTION: Union Minister of External Affairs Pranab Mukherjee shaking hands with SEBI Chairman, C. B. Bhave (left) during the annual meeting of Assocham in New Delhi on Tuesday. Assocham President, Venugopal N. Dhoot (second from left), and President-elect of the chamber, Sajjan Jindal, look on.

NEW DELHI: Market regulator Securities and Exchange Board of India (SEBI) on Tuesday announced that exchange-traded currency futures would be allowed in the next three months to provide a cushion to investors against volatility in currency markets.

In his address at the annual meeting of Associated Chambers of Commerce and Industry of India (Assocham) here, SEBI Chairman C. B. Bhave informed the gathering that the SEBI’s next task would be to work on interest rate futures and on the creation of an exchange for small and medium enterprises (SMEs).

“Today, regulators have to see that our markets are as complete as it could be...In the next three months, you will see the start of exchange-traded currency futures in this country,” he said. Asked whether Indian markets are prepared for its introduction, he said “I think our market is ready for it.”

Explaining the need for introducing exchange-traded currency futures when such deals are already permitted in the OTC (over-the-counter) market, Mr. Bhave said: “It is not that we are not exposed to it at all. The attempt of SEBI and the central bank [RBI] is to create exchange-traded currency futures as they are far easier to be regulated and far easier to contain risks than OTC market.”

An RBI-SEBI panel had suggested that, to start with, currency futures market should be introduced for dollar-rupee deals with a minimum contract size of $1,000 and no participation by foreign institutional investors (FIIs) and non-resident Indians (NRIs). Unlike current forward contracts where no money changes hands except on the maturity date, mark-to-market obligations are settled on a daily basis in exchange-traded future contracts. In its report, the panel had pointed out that since profits or losses in futures market were collected and paid on a daily basis, the scope of building up of mark-to-market losses in the books of various participants would be limited.

Mr. Bhave said that SEBI’s next task would be interest rate derivatives for which a joint RBI-SEBI technical committee would work on the various suggestions received on the apex bank’s paper on interest rate futures.

Alongside, the Board would also work on setting up an SME exchange. “We also have to see that we give access to markets...There are a variety of issuers. It cannot be that there are only top 500 companies in this country. Therefore, the next thing that is engaging our mind is the creation of [an] exchange for small and medium enterprises,” he said.

On participatory notes (PNs), a derivative tool that enables unregistered foreign investors to invest in Indian bourses, the SEBI chief ruled out the possibility of any relaxation in curbs which were imposed last year.

“No. SEBI has already notified the regulations which arose out of October decisions,” he said.

SEBI’s priority, Mr. Bhave said, was to implement common international standards for listed companies in terms of investor protection, corporate governance and disclosure norms at the time of public issue. These norms would also include accounting standards for continuous disclosure requirements in keeping with international financial reporting standards (IFRS), he said.

Mr. Bhave also denied that there was any proposal to integrate the Bombay and National stock exchanges. “We would not want to force a single exchange on the market as long as competition is possible, and it should be there,” he said, while noting that if technology “forces integration one day then the issue may be considered”.

Sajjan Jindal to head Assocham

Sajjan Jindal, Vice-Chairman and Managing Director of JSW Steel, on Tuesday took over as the new President of Assocham. He succeeds Videocon Group Chief Venugopal Dhoot. Spelling out his priorities after assuming charge, he said he would promote five causes during his Presidentship in the current fiscal which include making Latin America as India Inc.’s major business partner, suggesting measures to the government to tame inflation and facilitate agricultural growth to go up to about 5 per cent.

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