Sebi, SEs counting on currency futures

April 30, 2008
Ashish Rukhaiyar
MUMBAI

THE Reserve Bank of India’s (RBI) eagerness to flag off currency futures in the country is well known. Now the Securities & Exchange Board of India (Sebi) has got into the act and is pushing it through the fast lane.

According to sources familiar with the development, Sebi and stock exchange officials have met more than once in a fortnight to deliberate on the issues that will be handled at the exchange level. “Things are moving quite fast,” a person familiar with the development said, adding that “something concrete can be expected in near future”.

Sources add that Sebi and exchange officials discussed structural issues related to the currency contracts like tenor and settlement of contracts apart from the platform that will be used to launch the futures trading. Incidentally, RBI released its final report of its internal working group on currency futures on Monday, supporting the initiative to launch forex futures in domestic exchanges.

More importantly, the market regulator has given the exchanges one week’s time to decide on specifics like margins and surveillance, among other issues. “As for all other segments, exchanges will decide on the margins (like VaR, ELM, MTM) for the currency market too and submit the same to Sebi within a week,” the source said.

RBI, in its Monday report, said “day-to-day margining may be left to the discretion of clearing corporations” as the “settlement (is to) be done at exchange-specific clearing corporations”. However, it added that RBI “may have overriding powers to prescribe margins and/or impose specific margins for identified segments of the market, if necessary”.

Meanwhile, after Sebi’s deliberations with the bourses are over, the regulator will collate the feedback and discuss the same with the central bank that will play a key role as currency is the central bank’s domain. Sebi and RBI have formed a joint committee to look into the issue of currency futures. Sebi’s role, once the market gets operational, will be limited to regulating the clearing and settlement aspects as those will be done on the bourses.

On the other hand, RBI will keep a tab on the eligible participants and intermediaries that will include banks and brokers. The central bank feels that while banks can be allowed to become direct members of the futures exchange, brokers may be permitted only if they meet fit and proper criteria as well as other eligibility norms.