Exchanges gearing up to launch trading in currency options
Moneylife Digital Team 02 August 2010

New Delhi: The country's leading bourses are gearing up to start trading in currency options, a move that provides another alternative to traders for hedging against currency fluctuation, reports PTI.

While, the MCX Stock Exchange (MCX-SX) has started mock trading in currency options, two other bourses, the National Stock Exchange (NSE) and the United Stock Exchange (USE), are likely to launch the live trading soon after getting the approval from the Securities and Exchange Board of India (SEBI).

On Friday, market regulator SEBI allowed exchanges to introduce currency options on the US dollar pairing with rupee. At present, only trading in currency futures are allowed in the country in four currencies against the Indian rupee.

Currency option is a derivative instrument that gives an owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre- agreed exchange rate on a specified date.

"We are applying to SEBI soon (for the launch of currency options trading) and will start as soon as the permission comes," a senior official of NSE told PTI on Sunday.

"The introduction of options trading is expected to give a fillip to currency volumes," a market expert said.

Exchanges are enthusiastic about the launch of currency options and said the approval has been long awaited by market.

"Introduction of currency options has been long awaited by market and is definitely a step in the right direction," United Stock Exchange CEO T S Narayanasami said.

Currency option is primarily a retail product and we hope corporates and small and medium enterprises (SMEs) to enter this market in a big way by hedging their forex risk at the minimal cost, he added. USE is yet to start operations.

"We will start full-fledged operations in currency futures in September, followed by trading in options and interest rate futures," Mr Narayanasami said.

On the likely benefits of exchange-traded currency options, Reserve Bank of India (RBI) chief general manager foreign exchange department (trade) G Jaganmohan Rao had said, "By doing that, we will have another option in our pocket. Companies and exporters both will benefit."

In August 2008, SEBI allowed exchanges to introduce currency futures, a derivative contract to buy or sell one currency against other on a specified future date, at a price decided in the contract.

RBI and SEBI jointly regulate these products. While RBI approves the products, SEBI decides on the trading platforms.

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