www.nseindia.com 1 NATIONAL STOCK EXCHANGE NSE’s Currency Futures March 2009
www.nseindia.com 1
NATIONAL STOCK EXCHANGE
NSE’s Currency FuturesMarch 2009
www.nseindia.com 2
Currency Markets
• OTC For hedging purposes Banks as the counter-party Forwards, swaps and Options Regulated by RBI
• No Exchange traded market• Need to deepen the market• Increased volatility• Need for Exchange traded futures
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Movement of USD-INR
38
40
42
44
46
48
50
52
54
Jan-
00A
pr-0
0Ju
l-00
Oct
-00
Jan-
01A
pr-0
1Ju
l-01
Oct
-01
Jan-
02A
pr-0
2Ju
l-02
Oct
-02
Jan-
03A
pr-0
3Ju
l-03
Oct
-03
Jan-
04A
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4Ju
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Oct
-04
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05A
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5Ju
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Oct
-05
Jan-
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pr-0
6Ju
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Oct
-06
Jan-
07A
pr-0
7Ju
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Oct
-07
Jan-
08A
pr-0
8Ju
l-08
Oct
-08
Jan-
09
RBI reference rate
Nov 7, 2007 : 39.27Mar 5,2009 : 52.06
• Rupee has depreciated by over Rs.7 in past 6 months (around 16%)• Rupee touched an all time low Rs.52.06 on March 05, 2009 in last decade
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OTC vs FuturesOTC Market Exchange Traded Futures
Accessibility Restricted entry Entry not restricted
Price Transparency
Limited access OnlineHigh visibility
Liquidity Depth not known Depth visible
Agreements Customized Standard
Credit Exposure Yes Mitigated through NSCCL
Settlement Physical Delivery Net Settled in INR
Underlying exposure
Required Not required
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Policy framework• Regulatory Framework
• RBI – SEBI Technical committee report• RBI circular• SEBI circular
• All resident individuals permitted • NRIs and FIIs not permitted• Underlying exposure not necessary• Settlement of currency futures – cash settled in
INR• Commenced trading with September 2008 contract
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A break through
• Currency derivatives in equity exchanges• Hitherto, different asset classes in separate silos• ‘First time’ – in many areas
• Joint regulation by SEBI and RBI• Non-equity, asset class with equity derivatives
• Similar front end• Similar margining methods• Similar regulatory, trading and clearing
infrastructure
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Contract specificationsCategory DescriptionUnderlying Rate of exchange between 1
USD and INR
Contract Size USD 1000
Contract Months 12 near calendar months
Expiration Date and Time
Last business day of the month
Min Price fluctuation
0.25 paise or INR 0.0025
Settlement Cash settled in INR on relevant RBI reference rate
Particulars Time lines
Trading Hours 9:00 am to 5:00 pmSettlement ScheduleDaily MTM T+1Final Settlement T+2Funds Pay-in & Pay out
around 08:30 am
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Membership and Operations• Around 520 members • Multiple Banks• Many more in the pipeline• Max traded value: around Rs.3629 cr. (USD 714
mn)• Near month most active• Next three months more active• Tight Bid-ask spreads
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Turnover
0
75000
150000
225000
300000
375000
450000
525000
600000
675000
29-A
ug
8-S
ep
15-S
ep
22-S
ep
29-S
ep
7-O
ct
15-O
ct
22-O
ct
31-O
ct
7-N
ov
17-N
ov
24-N
ov
2-D
ec
10-D
ec
17-D
ec
24-D
ec
1-J
an
9-J
an
16-J
an
23-J
an
2-F
eb
9-F
eb
16-F
eb
24-F
eb
No.
of c
ontra
cts
0
500
1000
1500
2000
2500
3000
3500
Rs. i
n cr
ores
Daily Volumes in contracts
Daily Market Traded Value (RsCrores)
Month Avg. daily traded Value in Rs. crores
Avg. daily traded Value in USD mn
Nov-08 887.17 179.65
Dec-08 1087.62 222.93Jan-09 1198.99 245.05Feb-09 1671.65 337.69Highest volumes of Rs 3629 cr. (714 USD mn) was observed on Mar. 19 ’09
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Number of trades
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
24000
Aug-0
8
Sep-0
8
Oct
-08
Nov-0
8
Dec-
08
Jan-0
9
Feb-0
9
Month Avg. daily tradesNov-08 5803Dec-08 8554Jan-09 11619Feb-09 12659Highest trades of 24366 was observed on Feb. 17 ’09
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Open Interest
0
50000
100000
150000
200000
250000
300000
350000
400000
29-A
ug
10-S
ep
19-S
ep
30-S
ep
13-O
ct
22-O
ct
3-N
ov
12-N
ov
24-N
ov
4-D
ec
16-D
ec
26-D
ec
6-J
an
16-J
an
28-J
an
6-F
eb
17-F
eb
27-F
eb
No.
of
contr
act
s
0
250
500
750
1000
1250
1500
1750
2000
Rs.
in c
rore
s
Daliy Open Interest (incontracts)Daily value of Open Interest (inRs crores)
Month Avg. daily open interest in Rs. crores
Avg. daily open interest in USD mn
Nov-08 746.87 151.43Dec-08 803.05 164.29Jan-09 1057.20 215.78Feb 09 1407.33 284.70Highest open interest of Rs.1786.41 crs (359.79 USD mn) was observed on Feb 17 ’09
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Participants – early experience
16%
17%
23%
44%
Banks
Proprietary
Public & Pvt Co / BodyCorporatesOthers
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Client Position Limits
4.000
8.000
12.000
16.000
20.000
24.000A
ug-0
8
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
In U
SD
Mn
Client Level Limits
Particulars Limit Max LimitClient Level Higher of USD 5
mn or 6% of OIUSD 21 mn for Feb 18
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20.000
25.000
30.000
35.000
40.000
45.000
50.000
55.000
60.000
8/29/08
9/13/08
9/28/08
10/13/08
10/28/08
11/12/08
11/27/08
12/12/08
12/27/08
1/11/09
1/26/09
2/10/09
2/25/09
TM - Position LimitsParticulars Limit Max LimitTrading Member Higher of USD 25 mn
or 15% of OIUSD 54 mn for Feb 18
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NSE
BSE
MCX-SX
Comparative Volumes and OI
NSE
BSE
MCX-SX
Exchange Average dailyvolumes inUSD mn
% ofmarket share
NSE 247 approx 50%
BSE Negligible NegligibleMCX-SX 247 approx
50%
Exchange Average daily OI inUSD mn
Market share %
NSE 204 61%BSE Negligible NegligibleMCX-SX 128 39%
Traded Volume Open Interest
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Spread distribution
48%
30%
20%
1% 0% 0% 0% 0% 0% 0%0%
10%
20%
30%
40%
50%
60%
0.0025 < 0.005 < 0.01 < 0.02 < 0.03 < 0.04 < 0.05 < 0.1 < 0.25 < 0.5
0%
20%
40%
60%
80%
100%
120%% to total (Feb 09) Cumulative % Futures
Spread Interval NSE: Cumulative % - Futures
OTC: Cumulative % - Forwards
0.0025 48.29% 0.61%
< 0.005 78.40% 11.23%
< 0.01 98.71% 54.87%
< 0.02 99.85% 90.68%
< 0.03 99.92% 99.73%
< 0.04 99.95% 100.00%
< 0.05 99.96% 100.00%
< 0.10 99.98% 100.00%
< 0.25 99.99% 100.00%
< 0.50 100.00% 100.00%
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Impact Cost
Order size : USD 500,000Instances covered : AllOrder Book : Both buy and sellAverage cost : Around 1 to 2 bp90th percentile : Around 3 bp
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Emerging scenario
• Nation-wide participation• Banks doing proprietary trading
Need to increase client business• Multiple exchanges • Good liquidity for
smaller order sizes Near months
• Need for bringing in Depth and Liquidity
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Road ahead – How do we develop?• Range of products
More underlyings – ex. GBP, Yen, Euro Options
• Participants Foreign Institutional Investors
• Need to hedge exposures• Can actively trade resulting in deeper markets
• Limits Need for enhancing the limits Currently at 6% and 15% for clients and TMs Constraints for Corporate Clients Need for increase in the percentages
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Road ahead – contd…
• Exporters and Importers hedging, though in a small way No physical delivery – an issue Need to Pay Margins Daily Mark to Market payment as a new paradigm Bundled cost vs. segregated cost Position limits are too small
• SMEs may take the benefit• Larger needs of hedging for large corporates• Position limits do not permit
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Road ahead – contd….• Improvement in Bank participation
Reduces credit risk issues for banks Retains business Reduces the need for Risk weighted capital Helps in handling the physical leg Longer tenures – liquidity
• Education of End users
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