Bringing Rupee Trading Home, India Takes Steps to Deepen Markets
India plans to allow foreign-exchange settled rupee derivatives trading in specially designated centers.
(Bloomberg) -- India plans to allow foreign-exchange settled rupee derivatives trading in specially designated centers as it tries to deepen the local market.
The non-deliverable forwards will be traded on the International Financial Services Centres, the Reserve Bank of India said Friday. GIFT City in Prime Minister Narendra Modi’s home state of Gujarat is currently the only operational venue.
Trading in the onshore market has been shrinking at the expense of offshore rupee market, Governor Shaktikanta Das told reporters. For instance, London has surpassed India’s financial capital Mumbai to become the top center for trading rupee, according to the Bank for International Settlements last month.
“This is going to be analogous to another off-shore exchange where only non-residents or GIFT based entities can trade, as per the existing regulations,” said Madhavi Arora, an economist at Edelweiss Securities Ltd. in Mumbai.
The India International Exchange (IFSC) Ltd., a GIFT city-based bourse, said it will launch dollar-rupee futures and options contracts once it secures the approvals.
“We expect lot of participants to be attracted to the IFSC, and similar to other asset classes like equity index and gold, we look forward to build significant liquidity,” said V. Balasubramaniam, managing director and chief executive at the exchange.
Alive to the growing influence of the offshore rupee market, the central bank has been looking at ways to improve access for global investors and offer them more products to ramp up volumes at home. The rupee was held hostage in 2013, the year of the taper tantrum, by speculators abroad. That sent the currency to a record low.
U.K., Singapore
The average daily trading volumes for rupee in the U.K. soared to $46.8 billion in April, a more than fivefold jump from $8.8 billion in 2016, according to a BIS. That exceeded the $34.5 billion recorded in India.
Rupee trading -- including spot, outright forwards, foreign-exchange swaps, and other products -- also jumped in Singapore, Hong Kong and the United States over the three-year period, according to BIS.
The central bank said it will also allow local banks to freely offer foreign currency prices to non-residents.
“This may further narrow down the arbitrage between on-shore and off-shore markets and induce lower volatility in rupee emanating exclusively from off-shore markets,” Arora said.
To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Ravil Shirodkar
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