3 Years of Currency Derivatives Segment: Digest

Issue No.
10 January 2012 DIGEST
3 years of Currency
Derivatives Segment
Partner Exchange
CONTENTS
ARTICLES
1. Mr Manoj Choudhary, Head Business Development .......................................................................01

Alpari Financial Services
2. Naveen Mathur, Associate Director-Commodities and Currencies .................................................05

Angel Broking, Mumbai
3. Dr Sayee Srinivasan, Head of Product Strategy................................................................................09

Bombay Stock Exchange
4. Rajat Prasad, Head - Treasury and Forex ..........................................................................................13

Gitanjali Group
5. Mr Shrikant Subbarayan, Director ...................................................................................................17

Greenback Financial & FX Services Pvt Ltd.
6. Dr AlokPandey, Director-Advanced Studies .....................................................................................22

ICWAI
7. Mr K G Mantri, Sr. VP - Corporate Affairs ........................................................................................28

MAN Industries (India) Ltd
8. Dr V Shunmugam, Chief Economist .................................................................................................32

MCX Stock Exchange
9. Mr Jagannadham Thunuguntla, Strategist & Head of Research .....................................................37

SMC Global Securities
INDIAN ECONOMY-AN UPDATE ............................................................................................................43
POLICY UPDATES ...................................................................................................................................46
lBanking sector
lCapital Markets sector
lInsurance sector
FUTURE EVENTS.................................................................................................................................... 57
lRoundtable on 'Role of insurance companies and pension funds as institutional investors'
lIndian Financial Services Congress on 'Reinventing For Sustainability'

ARTICLES
DISCLAIMER
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The publication does not verify any claim or other information in any advertisement and is not responsible for product claim &
representation.
Articles in the publication represent personal views of the distinguished authors. FICCI does not accept any claim for any view mentioned
in the articles.
ARTICLES
PREFACE
As we embark on a new calendar year 2012, it gives me immense pleasure to release the tenth
issue of our widely acclaimed Banking & Finance Digest. Through the Digest, FICCI endeavors to
facilitate a comprehensive forum for dialogue amongst the Indian Inc. and the Government
thereby providing necessary directions to policy makers and business processes. The issues
discussed herein are invaluable inputs for FICCI's extensive network of industry members and
stakeholders. This issue of our digest aims to bring to the forefront perspectives of experts from
India Inc. and financial sector intermediaries on "3 years of Currency Derivatives Segment"
Currency futures has come a long way in these three years. Currency futures markets now have
sufficient volumes to meet corporate hedging requirements. Since currency derivatives can be
used for hedging forex risks, promotion of currency futures and the derivatives market may also
work as a risk mitigation tool for the Indian banking system. Perhaps RBI's vision of "currency
Futures is the way ahead" will become a reality in the near future. As we have seen in the recent
past, the world is shifting from the OTC products to exchange traded products and the future
holds bright for currency derivatives in India. It is evident that this segment is here to stay along
with the OTC market.
Through the voice of some of India's leading names in the financial sector, this issue deliberates
on the possible way forward for the Currency Derivatives segment.
We thank our partner MCX Stock Exchange for extending their support to help achieve our
endeavor.
We do look forward to views and suggestion from the readers to help us improvise the content
of the digest and make it more relevant and informative.
Dr. Rajiv Kumar

ARTICLES
Three Years of
Currency Futures
Mr Manoj Choudhary
Head Business Development
Alpari Financial Services
PREVIEW ?United Stock Exchange on Markets in true sense are 24 hrs

September 20, 2010. Markets is also said that FX markets
On August 15, 1971, the United follow the sun moments around the
The move of RBI was probably
States unilaterally terminated earth, while its morning in NY
instigated by some existent bodies
convertiblity of the dollar to gold. As ,London is in noon time, Post noon
offering domestic currency i.e DGCX
a result, the Bretton Woods system sessions in NY are usually dull, and
(Dubai Gold and Commodity
officially ended and the dollar opening of NY session marks release
Exchange) and NDF Markets(Non
became fully fiat currency, that of economic datas, dollar being the
Deliverable Forwards)While DGCX
marked the birth of a currency base currency so the US datas have
was the the only exchange outside
trading exchange' CME' for equilateral effect on entire markets
India where the Indian currency was
Currency futures. The launch of ecosystem. Globally the Foreign
traded, there is also an unregulated
currency future market has been a exchange markets, better known as
non-deliverable forward (NDF)
major landmark in the history of FX markets are the biggest on the
market for it in Singapore, where a
financial markets globally. The basis of the traded turnovers and
large number of funds took
Chicago Mercantile Exchange (CME) transparency so are preferred by
positions. Though the recent
became the first currency future traders globally.
circular by RBI will keep a better
exchange.
control over participants who had
But for India 2008 was the year overseas arms and were actively
which shall hold equal importance doing arbitrage.
as National Stock Exchange was the
first privileged exchange to flag off GLOBAL VISION
launch of Currency Derivatives
segment on August 29, As we all know that globally
2008,followed by Bombay Stock FX(Foreign Exchange) is the largest
Exchange on October 1, 2008and liquid market known in the world in
Multi Commodity Exchange's arm terms of the cash value traded
MCX-SX on October 7, 2008 finally which exceeds 4 trillion/day.and FX
FICCI's Banking & Finance Digest 01

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But that's the global picture, back in the volatility of foreign exchange from $60million in sep08 to $1
India Currency futures had a modest rates declined after introduction of Billion each, officially this kind of
beginning but eventually went on currency futures trading while in growth rate was the highest as
gaining the grounds of credibility some countries like Brazil and compared to any other derivative
and acceptability. Hungary, currency futures trading product/market.
did not have significant impact on
Unambiguously the message was
INDIAN JOURNEY existing structures, Exchanges had
clearly passed on to the business
their roles to familiarize common
Now journey of INR Futures had class of the country that exchanges
man to this new segment ,get the
begun, Since it was a historic step had definitely got them
liquidity and target actual end users.
there were expectations of a mix Transparency since any
bag of feelings amongst the various First phase was most defining since SME/Individual in any corner of the
segments it needed to clear the myths/beliefs country could see the live single
of traders/ hedgers, Exchanges did a price irrespective of the
Exporters/Importers: Why do we marvelous job by reaching the ticket/business,relationship with
need this platform we already have different parts of the country OTC Dealers, No longer they needed
been hedging with our respective conducting series of seminars/road access to Reuters/Bloomberg
banks? Investors Class: What kind of shows and explaining them that why screens to know the live markets,
investment/trading tool can INR be, futures of INR was the need of the awareness about impact cost was
we are comfortable with present set times. The results were imminent also understood.
of investment options! Corporates: I wherein the Leading exchanges
get red carpet from my banks and Next challenge faced now was of
came out with impressive average
moreover my ticket size is huge ,so I liquidity, Exchanges continued to
trading volumes from initial phase
guess it might take a couple of years grow in terms of Volumes and OI,
of launch and in less than a years
for the markets to qualify to take the biggest advantage for exchanges
time the rise was almost 1500%
orders of my book. Arbitraguers: OK,
another segment, but how do I
derive the historical data/lead:Lag
ratio since the product itself is a
new!
DIFFERENT PHASES OF
CHALLENGES:
ACHIEVEMENTS
So the challenge for the Regulators
faced was to ensure immaculate
functioning of the Futures Exchange
since historically launch of futures
Exchanges had different types of
reactions as in countries like Mexico,
02 FICCI's Banking & Finance Digest

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was a new segment entering the teams. Regulator permitted some of

markets' arbitrageurs' who got in the exchanges to offer 'Options'
with their technological which was another feather in
feed/formulae to track the price Currency's Cap!
variations in OTC/Futures,Intra
Memberships of the Banks
Month spreads(Calendar spreads)
increased ,OTC markets used to look
and Intra exchange arbitrage this
at ETF (Exchange traded futures),
gave enormous liquidity to the
Exchanges were at their fieriest best
exchanges and by now Currency
to have majority share in Currency
Segment was compared to
segment. The composition of actual
Commodity markets turnovers.
users was increasing MoM, The
Liquidity was enough by then but impressive growth of currency
now the exchanges were out to futures market
serve the big business houses so
within three years of its inception in
now few more mind blocks were
August 2008 (average daily trading
there as it was a single pair and with
volume beyond Rs Exchange and MCX Stock Exchange
that Now the regulator permitted
additional currency pairs ?Euro- together put up an average daily
50,000 crore in Mid 2011)then the
Indian Rupee (EUR-INR),? Pound turnover of over Rs 20,000-25,000
two exchanges which introduced
Sterling-Indian Rupee (GBP-INR),? crore in currency trading. Lately,
transaction charges, fell significantly
Japanese Yen-Indian Rupee (JPY- Equity was gloomy, Commodity was
since August 22, while trading
INR), and the markets took this with dull while entire show was stolen by
volume at USE actually grew
a welcome gesture, though USD- Currency!
marginally. Compared to the period
INR, pair was the leader in terms of 1st January, 2011- 18th August,
Volumes, but these currencies 2011, it can be seen from the figure,
TRANSITIONS
added variety in the portfolio. average daily trading volumes fell by Exporters Importers-Embraced the
Meanwhile on 15 July 2010 INR got 20% NSE and by 17% at MCX-SX segment which helped them hedge
a symbol, a big day indeed for the since 22nd August, while it grew by without counter party risk and with
segment as officially Indian Rupee 7% at USE. It must be mentioned complete transparency, Corporates -
was amongst the most favourable here that trading volume in Shifted part of their respective
trading pairs amongst elite currency options at NSE actually portfolios to ETF's (Exchange traded
currencies. grew by 8% after introduction of futures) to have dual advantage of
transaction charges. Probably the OTC and ETF's, Investors-discovered
This phase was the most positive
arbitrageurs found options more a all new product with complete
one as by now Head Hunters were
lucrative than futures post the transparency, least margin and
after candidates with Currency as a
charges. highest levels of Risk Management
speciality and Brokling Firms were
on Hiring spree by adding parallel Nevertheless Currencies were still enabling themselves to diversify
verticals for this segment which best performers amongst all the their portfolios, Scalpers/
initially was taken care by their classes, presently In India, National Arbitrageurs always wanted a
existing Commodity and Equity Stock Exchange, United Stock novice tool so were happy to see

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the successful innings, Commodity can be backed by many factors ROAD AHEAD-Currency
Traders could operate at ease, Since combined, the phenomenon which
they are/were directly affected by started from U.S collapse also one of
Derivative Segment
currency fluctuations so an the reason behind the structural As seen currency derivative can be
accessible portal was their biggest increase in volatility is the growth of used for hedging forex risks,
utility.(especially bullion dealers) India's Current Account, including speculation or arbitrage. Companies
exports and imports of both goods and financial institutions can enter
CONCERNS WITNESSED and services, and India's Capital the forex market primarily for
Account, which is on a high degree minimizing the risks due to
Any product at early stages comes of volatility in portfolio investment exposure to foreign currencies. An
with some wishful points, some of flows, to some it is now increasingly investor can take a position to
anecdotal incidents/evidences- difficult for the RBI to contain the participate in the market for trading
Many participants felt that FIIs and volatility on a daily basis. As the or sell immediately to benefit from
NRIs must be allowed in Currency economy continues to grow and the variation in the forex rates on
Future Trading, There should be open up, it is unlikely that forex different exchanges. Currently, only
eased norms on eligibility for Banks volatility is going to decrease. resident Indians (including
to become a Clearing and/or a Moreover the ongoing Euro-zone individuals, companies and financial
trading member. Brokers should get debt crisis seems to be institutions) can trade in the four
some kind of ease in membership intensifying and rescue packages currency pairs available in the local
registration process if they have have been of limited assistance in market-dollar/rupee, pound/rupee,
permissions from any regulator of truly resolving the crisis. While the euro/rupee and yen/rupee.
the country, Trading hours must be risk of sovereign default by
individual Euro states is a concern, Not to miss that the volatility in INR
extended, since bullion traders are
the risk of an impending contagion is on up move, which will be directly
hit the most post market closure as
is also significant. It is estimated proportional to the Business
Gold's volatility is historical and
that the IMF has about $400 billion revenue/risks.So going ahead
hysterical.
available to provide funding to the managing forex risk will/should be
Euro-zone, but Italy alone has to handled with same caution as other
ROAD AHEAD-INR as
refinance $350 billion worth of business activities. As such, the
Instrument debt in the next six months. sooner Corporate India realizes that
Domestic macro-economic forex volatility is a fact of life and
Recent Currency moves during the
prospects as well are weighed by learns how to deal with it, the
last 12 months, the Indian Rupee
high inflation and sagging better.
exchange rate depreciated 14.89
percent against the US Dollar. industrial production, which have
The belief in INR futures
Historically, from 1973 until 2012 led to downward revision of growth
outperforming again in 2012 is as
the USDINR exchange averaged estimates to just 7.6% for FY12,so
strong as disbelief about some
30.38 reaching an historical high of INR can be on weaker side.
Doomsday in 2012!!
53.72 in December of 2011 and a
record low of 7.19 in March of
1973.The perpetual weakness in INR

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Changing dynamics of
forex trade in India
OTC to currency derivatives
Mr Naveen Mathur
Associate Director-Commodities and Currencies
Angel Broking, Mumbai
G lobally, currency trading

accounts for more than 60
percent of global trading and marks
globalization, India too has made a
mark with the launch and
development of derivative products.
as one of the world's largest The $1.7 trillion economy has seen a
financial markets in the world remarkable difference in the
followed by commodities and financial market space. What
equities. The global foreign started as a shift in the currency
exchange market stands at a regime in India in the 1990s, has
whopping $4 trillion in turnover per now led to increased risk-bearing
day, slightly less than the size of the capacity amongst banks coupled
Japanese economy at $5.4 trillion. with rise in foreign exchange trading
Activity in the global foreign volumes. Increase in foreign
exchange market has witnessed currency turnover in India can be
sharp growth since 2007, with attributed to rising foreign The rest of the 50 percent comes
turnover between 2007 - 2010 rising investment inflows and as large from derivatives such as swaps and
more than 20 percent. Increased Indian companies use the external forwards. The recently introduced
volumes in global forex trade are on commercial borrowings route to Exchange Traded Currency
the back of rise in trading activity of raise capital. Derivatives (ETCD) at the national
other financial institutions like non- level exchanges in the year 2008
A break-up of the Indian currency
reporting banks, pension funds, have seen phenomenal growth and
market indicates that the interbank
hedge funds, insurance companies this segment has an average daily
forex market has an average daily
and central bankers. turnover of $15 billion, thus
turnover of $40 billion, out of which
bringing the average daily turnover
India is in its phase of nurturing and spot forex trading volume which is
of India to approximately $55
developing this market to the $20 billion, contributing to 50
billion. On a global level, turnover in
fullest. In this era of financial percent of the forex market volume.

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the currency futures market stands derivatives offer standard futures in India, the traditional tendency is
at $207 billion, out of the total contract lot size as against to extract rates from the OTC
turnover of $4 trillion. In India, customized forwards contracts, in markets and the quotes by the
three exchanges offer currency the case where banks prefer a banks are considered as final. But a
derivatives trading - National Stock contract value of at least $1 million. major drawback in case of over-the-
Exchange (NSE), Multi Commodity Another major positive in case of counter trade is that different rates
Exchange - Stock Exchange (MCX-SX) currency derivatives is that there is are offered to the bank clients
and the United Stock Exchange no question of counterparty default depending upon on their
(USE). risk as exchange clearing house relationship with the bank and the
guarantees trade settlement. volume of business that a client
With the emergence of currency
Efficient risk management system offers to the bank. The system of
derivatives, a participant with a
helps all market participants to the OTC market is opaque and
foreign exchange exposure can find
witness stress-free trade. Apart makes it difficult for small and
easy access to information over
from that, other advantages of medium enterprises along with
rates and future market
currency trading include - low retail investors to make an entry
expectations for the currencies
commissions, high liquidity, real- and have a successful trade. It is
traded. Benefits of trading in the
time transactions, low margin and now a lot easier for a small and
currency futures segment are
with no scope of manipulation in medium enterprise to venture in
immense - from accessibility to
rates. the foreign exchange market with
price transparency and
clarity and transparency.
standardization, which in the case of In India, currency derivatives have
over-the-counter trade is entirely emerged as a popular tool to hedge Largely, a shift has been seen in
different. As far as accessibility is currency risks. But it is surprising to currency trade from the OTC market
concerned, currency derivatives see that only 10 percent of volumes to futures. Taking equities as an
offer an online electronic trading actually come from the hedgers. The example, in India itself we have
platform as opposed to the reason why hedgers are currently seen a major shift from the open
interbank forex market. In terms of weighing the currency market is that outcry system on the NSE and the
price transparency, an online trading
platform makes sure of uniform and
real-time price access to all market
participants, while in the OTC
market one has to rely upon the
rates offered by the bank.
In case of forward contracts and the

OTC market there is a high bid-ask
spread on the back of high
transaction costs and bank charges.
Standardization in any financial
derivative is a must and currency

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BSE, the major Indian equity

exchanges. Globally, too the trade is
witnessing a change in trend as
investors whether corporate,
institutional or retail, prefers the
online and transparent trading
system.
In India, the introduction of new

products within currency futures is
another step forward that will help
boost volumes further. In
October'2010, the Securities and
Exchange Board of India (SEBI) and
the Reserve Bank of India (RBI) had
allowed the exchanges to introduce exchanges would be benefited market. This indicates that the
currency options trading in USD/INR hugely with the launch of options in central bank has taken a stance
pair. The RBI permitted commercial all the other currency pairs as well. apart from direct intervention and
banks to be trading and clearing has also reduced further volatility in
Having un-hedged currency
members of exchange-traded the Rupee. The recent circular
positions in the current market
currency options subject to fulfilling dated December 15th 2011 includes
scenario can be risky and currency
conditions related to net worth, withdrawal of the facility to cancel
futures offer an excellent platform
capital adequacy ratio, net profit and re-book forward contracts by
to mitigate these un-warranted
and other requirements. Other resident and foreign institutional
losses. The Rupee depreciated
scheduled commercial banks are investors. The RBI also reduced the
sharply in last few months of 2011
permitted to participate in the net overnight open position limit of
and continues to trade above the
exchange-traded currency options banks that are authorized to deal in
52-mark, indicating that risks to the
market only as clients. With the foreign exchange. The impact of
Indian economy are high. At the
introduction of options in the this move by the central bank is
point when the Rupee touched an
currency markets, we expect expected to be advantageous for
all-time low of 54.30 on December
phenomenal growth in volume in the currency futures market of India
15th 2011, importers who would
Currencies derivatives space too. as reduced limits of importers to 25
not have hedged their positions
This is because options will help to percent from 75 percent in case
would have suffered dire
reduce risks as spread rates in an where the importers utilized the
consequences.
exchange will be better and will also past performance facility to hedge
help to reduce counter-party risk. Moving on to the current market currency risks will help draw
The developed markets across the scenario, we feel that the recent interest among the participants on
globe already allow trading of these move by the RBI to curb speculative the futures platform.
products and going by this positions in the foreign exchange
experience, we feel that the Indian market will be helpful to the futures

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The global increase in trade and boost and support from the same,
foreign investments has led to many thus creating exciting opportunities
national economies becoming and new profit potential for market
interconnected with one another. participants.
This interconnection, and the
We are confident that years ahead
resulting fluctuations in exchange
would present a much more
rates, has created a huge
structured and developed foreign
international market i.e. foreign
exchange markets in India. As we
exchange. India, being no exception
have seen in the recent past, the
and an important economy in the
world is shifting from the opaque OTC
globalized world today shall
products to exchange traded
therefore witness a tremendous
products and the future holds bright
opportunity which is yet untapped.
for currency derivatives in India.
Currency markets hence will get a
Presently, Associate Director of Commodities & Currencies businesses at Angel Broking Limited, Mumbai, India.
With rich industry experience of about 16 years in financial markets, he is associated with Commodities Trading
right from 2003, the year when two online commodities exchanges started traded activities.
Prior joining Angel group, he has worked as Country Head of Commodities with Religare Commodities Limited (a
Ranbaxy Promoted group company) for two years. He was instrumental in establishment and growth of
Commodities business at Religare.
Mr. Mathur has also been associated with Karvy Consultants Limited and also worked with BLB Limited as Director
on the board of the company. He has been involved in various management activities including opening of a
subsidiary company in Mauritius, Treasury Operations, Corporate and Strategic planning, Research activities in
Mr Naveen Mathur Futures and Options markets etc.
Associate Director
Commodities and Currencies Mr. Mathur is a regular speaker on electronic media channels (CNBC TV18, CNBC Awaaz, Zee Business, ET Now and
Angel Broking, Mumbai NDTV Profit) and has been regularly featured in print media also. He has been a guest speaker at various
conferences and seminars and is a speaker on financial services at leading Educational Institutions.
With Bachelors in Commerce, he completed his CFA in 1997 and has done Post Graduation in Financial Management
from Institute of Management Technology. He also holds Post Graduation in Business Finance from ICFAI.
Throughout his academic and extracurricular career, he has always been a meritorious student.
His interests are listening to music, reading journals and books apart from traveling to hill stations.

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Aiming for Quantum Growth

in the FX Derivatives
Market in India
Dr Sayee Srinivasan, Head of Product Strategy
Introduction collaborative process between RBI spectrum of market participants,

and the Securities Exchange Board including those trading commodity
The near-explosive growth of the FX of India (SEBI). Regulators typically derivatives - who normally do not
futures market in the Indian market do not make good product come under the jurisdiction of
in the past three years has been developers, both due to lack of either RBI or SEBI.
very impressive. This knowledge of the product and
unprecedented growth can be market, and lack of accountability Product-Settlement
attributed to the strong latent for product failures. While their role Process
interest in trading FX - for both has to be commended, the
speculative and hedging - and, aided resounding success was clearly due The largest exchange traded
by market structure factors like to latent demand from a wide currency futures and options
lower transactions cost and intense
competition by trading venues
offering the same product. Looking
to the future, this note looks at
other factors which can potentially
drive quantum growth in this
market by extending the range of
products and services, and
expanding the range of participants.
Introduction of FX derivatives on
exchanges was preceded by a long
consultation process, driven initially
by the Reserve Bank of India (RBI).
Later rule making was, and
continues to be through a

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Unfortunately, the cash settlement

feature does not buy much
protection for companies against
any price gouging behaviour by
Indian banks. The reason for this is
as follows. Let's take the case of a
company that wants to protect the
value of its US dollar (to be received
at a later date against some good
being exported). So as to avoid
paying the high commissions
(typically added to the exchange
rate), the exporter could choose to
sell an equivalent amount of futures
on one of the exchange. This helps
protect the earnings in INR terms to
market continues to be operated by markets.
some extent. But it still leaves the
the CME group - the erstwhile
One of the reasons stated by RBI for exporter to residual risk from two
Chicago Mercantile Exchange. FX
introducing INR FX futures in India sources.
futures were first launched there in
was to reduce the cost of hedging
the 1970s. The contracts were First, when the exporter receives
risk by Indian companies. Typically
settled through physical delivery, the foreign currency remittance, he
firms will cover the FX risk by
and continue to be settled in that still has to go to the bank to convert
entering into forward purchase (for
manner, except in cases where such it into INR. This will be at the spot
importers) or forward sale (for
settlement is not feasible due to rate plus the usual commission
exporters) transactions with
convertibility issues. In such assessed by a bank for such trades.
bankers. RBI was of the view that
instances, contracts are settled in Second, assuming that the
some competition in the form of
cash against either a reference price remittance is received on the same
exchange traded futures will reduce
published by the central bank of the day as the expiry day of the futures
the spreads or commissions charged
respective country, or a price contracts, it is possible that the
by bankers to companies.
arrived at by polling or surveying conversion of the remittance
the market. While there has been no formal happens at a price different from
study on whether spreads in the the settlement price of the futures
Given the fact that Indian residents
forward markets have come down, contract - it would be positive or
are not typically allowed (by FEMA)
there is ample evidence that the FX negative and hence a source of risk.
to hold foreign currency in bank
futures market tracks the spot
accounts, RBI chose cash If the futures contract was instead
market closely. This will typically be
settlement. The choice of cash or settled through physical delivery,
the case when the futures product is
physical settlement depends on the the exporter could simply deliver
being used to express views on the
liquidity in the spot market, and on the foreign currency remittance to
movement of the respective
the ability of investors to arbitrage the clearing house of the exchange
currency pairs.
between the spot and derivatives to fullfill his obligation against the

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short futures position at expiry. This obligations are traded - In this derivatives markets. Indian
will ensure that the proceeds from instance, on a platform operated by companies have risk exposures that
the sale of the FX remittance are the an exchange, with a clearing house will need customized solutions.
same as that agreed upon while taking on the role of being the Unfortunately, markets have a
entering into the futures contract. counter-party to every trade. So as tendency at times, to build excesses
to protect itself against any risk of that result in losses and default. The
Participation default by market participants, the latest instance in India has been the
clearing house will collect some large number of FX options traded
Given that the product still leaves margins, and largely have some risk between banks and corporate in the
the corporate at the mercy of the management rules, systems, and OTC market.
banker, it is hard to expect any process to indentify, monitor, and
respectable share of the true Given the lack of transparency in
manage the risks.
hedging activity coming to the this market, nobody was aware of
exchange-traded product. Without A second type of market is the the size of exposures being built up
active participation, activity will be private, or over-the-counter (or by banks and corporate. The
driven primarily by speculators and OTC) market. All trades are bilateral, collaterals collected were not
arbitrageurs. As only banks can with terms negotiated and products sufficient to cover potential losses
participate in both spot and futures designed to suit the needs of from market and credit risk. The
markets, and thus arbitrage away specific needs of the respective problem of insufficient collateral
any pricing discrepancy, and thus firms. The agreements could was acerbated severely, as there
ensure that the derivatives markets provide for collateral collection, but was no daily mark to market of
prices are in line with those of the is less rule-driven than a public gains/losses.
OTC market, it might limit the market.
As a result, to quote a popular
overall growth of the exchange
The risks of the OTC market, and the phrase in the context of such
traded market. At the minimum, it
relatively more secure nature of the transactions, these trades are being
deprives the market of another
exchange-traded and centrally settled through "law-suits".
source of growth. Worse, by leaving
cleared public markets have been
it at the mercy of speculative
highlighted by the aftermath of the
interests only, we run the risk of
sub-prime crises, and well-
higher market volatility, and drying
illustrated by the continuing
up of liquidity. This in turn can
challenges to settle obligations by
further discourage participation by
Lehman and its counterparties for
end-users.
OTC trades.
Moving away from OTC The trend now is to move as much

of the OTC trading activity as
There are typically two markets (or possible to the exchange traded and
platforms) for any given underlying. centrally cleared markets.
A public market, where products or
instruments with standardized This trend should be encouraged in
descriptions and contractual India too, especially in the currency

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Assuming that there are genuine In addition, it can directly reduce market has also grown from cost-
economic risks, not just in FX, but the credit risk concerns of market arbitrage by speculators moving
also in the context of interest rate participants. Such reduction in risks away from equity derivatives which
and other risks, there is a strong can help attract participation in the are subject to securities transaction
case to avoid reactionary behaviour market. tax, and hence are more expensive
- which basically involves banning all and thus reduce the return on
Most important, from the
such trades. Instead, the regulators investment from over INR of risk
perspective of this note, growth of
should mandate that all such capital invested in a product. The
an institutional negotiated trading
customized trades be reported, risk cash settlement process has
and clearing platform for
managed, and cleared through discouraged true hedging interest
customized FX derivatives will bring
central platforms. from participating in the market.
new flow to the exchange traded FX
Collectively, it has exposed the
Most complex products are derivatives market. Banks and
market to the vagaries of
constructed using other liquid and others will use the more plain-
speculative trading, with low
actively traded instruments. Hence, vanilla futures and options contracts
economic benefits to end-users.
it should be feasible for a clearing to lay-off their risks from
house to assess risks and compute customized FX derivatives, thus Two solutions have been proposed.
margins for a wide range of such potentially driving quantum growth First, moving to delivery based could
customized products. Even in to the exchange traded FX attract end-user hedging interest,
instances wherein a clearing house derivatives markets in the country. and bring core liquidity to the
might not be willing to underwrite market. Second, corporate India
the risk for a specific product, in Summary needs customized hedging
other words, where it is not willing solutions, and allowing such
or able to step in to novate and In summary, while growth in the instruments to be processed
become the single counterparty for Indian FX futures market has been through central trading platforms
all trades, it can still compute impressive, it is not really surprising and clearing houses can reduce
margins, collect collateral, and do given the wide-spread interest in FX systemic risk, attract participation,
daily mark to market. as such. Our fascination with gold and help achieve quantum growth
has clearly been a huge driver, given in the more plain vanilla exchange
Having such services provided by an the synchronous behaviour of gold traded FX futures and options
independent institution can go a prices and the US dollar in the local markets.
long way in reducing systemic risks. and international markets. This
Dr. Sayee Srinivasan is the head of Product Strategy at the Bombay Stock Exchange. He has over 10 years of
experience in developing products across multiple asset classes including equities, interest rates, corporate bonds
and foreign exchange. He has worked with the CME Group, as Director of Asian Product and Market Development,
based out of Mumbai. In addition to his experience at the CME, he also worked at the NSE, on derivatives market
development, and at OptiMark Technologies in the US, developing electronic trading systems.
He graduated with a B.Com in accounting followed by MMS in Finance from Mumbai University. He went on to
obtain a doctorate in Economics from the University of Texas at Austin.
Dr Sayee Srinivasan
Head - Product Strategy

ARTICLES
Currency Futures and

Derivative Exchanges
in India
Mr Rajat Prasad, Head Treasury and Forex
Gitanjali Group
C urrency Futures and Derivatives

market has completed three
years of successful stint in India.
hedgers and other market
participants.
the last cent. Forward contract can
be booked for any date not
necessarily for the month end and
The currency futures and derivatives
There is a link between a well also for a period of time if the
have grown both in volumes and
functioning currency derivatives receivable / payables are maturing
open interest. Combined volumes of
market and the ability of the within that time period and exact
USD/INR contract on NSE and MCX
economy to absorb exchange rate due dates are not certain. This
has reached an average of Rs.
fluctuations. makes OTC market ideal for booking
26,000 crores while the open
contracts against actual receivables
It took 36 years from the date of the interest in USD/INR future contract
/ payables.
innovation (currency futures at is on an average $ 3 billion. The
CME) to get started with trading in volumes of USD/INR option
India but in a short span of 3 years, contracts on NSE platform has
the CD segment has witnessed a reached to an average of Rs 6000
rapid development with the onset crores with an average open interest
of new generation exchanges, soon of USD 3 billion. This shows the
overtaking the equities cash depth of currency futures and
segment. derivative markets on new
generation exchanges.
Amidst the recent volatility in
financial markets across the globe,
OTC Market - A market for
while the interest and confidence of
equity market participants is on the hedgers
wane, the exchange traded currency
OTC market is ideal for corporates
segment in India is witnessing a
who want to hedge their actual
steady growth, fuelled by increasing
exposure on deliverable basis. They
interests from more and more
can book the actual amount up to

ARTICLES
Reserve Bank has put lot of OTC derivatives market is very market to hedge their exposures as
restrictions on Customers using the shallow and only a few banks are they can book even $1000 in this
OTC market so that the OTC market permitted to run their own books. market and brokerage charged is
is primarily used for Hedging the Other banks cover back to back with same irrespective of the amount.
Forex Exposure and not for trading. these banks. Plain selling of
There are a number of transactions
Corporates wanting to book forward derivatives and receiving of net
where the actual date/month of
contracts on OTC market have to premium is not permitted in OTC
payment is not known. In OTC
show their underline exposure. They derivatives Market. Corporates can
market maximum permissible
can also book Forward contract on use these products to hedge their
period of booking is 1 month option
past performance basis but under exposure with limited loss (premium
period. Such hedgers book their
this facility it is mandatory to deliver paid) and unlimited gains (Currency
exposure for the first month in
25% of bookings for exporter and movement in direction of the option
currency futures market, roll it over
75% for importers. purchased).
near the month end and cancel the
There are lot of restrictions on OTC During the financial crisis of 2008, a contract on actual delivery to their
market for cancelation and number of instances came to light bank.
rebooking of contracts. Any contract where adverse positions of clients
Corporates who want to use
booked under actual underline if were allowed to run and later the
derivatives to hedge their exposure
cancelled once cannot be rebooked. Forex losses were converted to
have also started using the
Also if a contract booked under past medium term loans. OTC cost
exchange traded currency derivative
performance facility is cancelled the reduction derivative structures were
markets. This platform has helped
profit is not passed but the losses sold by banks without explaining the
them in price discovery and hedging
are recovered. These restrictions risks involved in such structures.
through options can be done for
make OTC market unattractive for This had put counterparty risk and
smaller quantity also. Corporates
traders who want to make money financial stress on the Banking
can also use cost reduction
taking advantage of volatility in sector as a whole.
structures on this platform as there
Forex markets.
is no restriction on plain selling of
Currency Futures - An
options in exchange traded
alternative to OTC derivative segment.
Currency futures market has Currency Futures and derivative

become an alternate platform for segment on exchanges have another
people using the OTC market .Actual advantage of less documentation
hedgers face many practical after execution of trades. Instances
difficulties in OTC market of hiding the trades from top
.Corporates having smaller forex management and blowing out of
exposure do not get limits to book proportion of hedge books is also
Forward contracts or the brokerage prevented due to daily Mark to
charged by banks is very high. These Market mechanism.
corporates use currency futures

ARTICLES
OTC market is executed primarily Currency Exchanges - An Traders have an incentive to do

over the phone. In the recent more on currency instead of Nifty
volatility it was observed that
opportunity for traders. because of zero STT, zero
execution of deals in OTC market transactions charge and less
Exchange has automated screen
was not very smooth due to brokerage. A number of participants
based trading, modern, fully
congestion of phone lines or non of equity derivative segments have
computerised trading system
availability of price in the market. shifted to currency derivative
designed to offer investors across
Currency Futures and Derivatives segment due to high volatility and
the length and breadth of the
segment ion exchanges is online thus returns are more.
country a safe and easy way to
system driven hence better invest. The NSE trading system
execution of trades is possible. called 'National Exchange for Currency Exchanges - the
Automated Trading' (NEAT) and limitations faced.
Exchanges carry out the clearing
ODIN from MCX are fully automated
and settlement of the trades screen based trading systems, which Currency exchanges have only four
executed in the futures and adopt the principle of an order currency pairs viz. USD/INR,
derivatives segment through a well- driven market. EUR/INR, GBP/INR and JPY/INR so
defined settlement cycle and there corporates having exposure in other
are no deviations or deferments Traders have started using the currencies have no alternatives to
from this cycle. It aggregates trades currency exchange platform for the OTC Market.
proprietary trading. Extreme
over a trading period, nets the Currency Exchanges have only
volatility in currency markets
positions to determine the liabilities month end contracts. People having
provides more opportunities for
of members and ensures movement exposure maturing in odd dates
traders to make money in this
of funds and securities to meet have to use workaround methods in
market. Even individuals can trade
respective liabilities thus Currency exchanges like booking for month
in this market as there are no
futures market takes away the end and unwinding on exact date if
preconditions to have an exposure
counterparty risk from the forex they want to hedge such exposures
to use this platform.
market. on currency exchange market.
Exchanges have put in place a

comprehensive risk management
system, which is constantly
upgraded to pre-empt market
failures. The Clearing Corporation
ensures that trading member
obligations are commensurate with
their net worth. Mark to market
margin on daily basis ensures that
the client position does not blow
out of proportion.

ARTICLES
Exchange traded futures are cash

settled and not deliverable while
such contracts are available on
commodity exchanges. In
commodity market delivery options
are available for Gold / Silver and
other commodities. Deliverable
contracts will put more pressure on
OTC market for better performance EUR/INR,GBP/INR etc. Introduction Currency futures can also offer
and competitive brokerages. of weekly contracts will provide variety of contracts for same
better opportunities for hedgers to currency like mini ($1000 lot), midi
Currency exchanges are tilted in
manage their risks. ($10,0000) and mega ($100,000).
favour of small and medium
This will also help bring bigger
corporates due to limited open Currency Futures market can also
players and more liquidity in
position limit for all currency pairs introduce delivery based contracts
exchanges.
at client level. Another limitation is where the client will give settlement
thin liquidity in contracts having instructions. In such contracts the
Conclusion
expiry of more than one month. In exchange can mitigate risk by asking
cross currency futures this liquidity clients to pay the full value in Three years of successful growth of
is very thin even in current month advance and then charge MTM on a currency exchanges have ensured
expiry. daily basis. that this segment is here to stay
along with the OTC market.
Currency futures markets after
Roadmap ahead Introduction of variety of currencies
three years of stability and depth
and contracts will increase the
Currency futures market can has come to a stage where the net
depth and liquidity in this market.
introduce more currency pairs like open position limit at client level
Promotion of currency futures and
AUD/INR, CHF/INR etc for other can be increased. This will attract
derivatives market will also work as
market participants. Currency even bigger corporates to this
risk mitigation tool for Indian
option market should also introduce market which in turn will also solve
Banking System.
option in other cross currencies like the problem of limited liquidity to
some extent.
Head Treasury and Forex at Gitanjali Group of companies. A certified treasury Manager from I C F A I with a total 21
years of experience in Banking and Corporate world. Having 9 years of exposure in treasury operation including 7
years in Bank of India Treasury and 2 years in Gitanjali Group. Involved in currency futures and derivatives extensively
for hedging the forex exposure.
Mr Rajat Prasad
Head - Terasury and Forex
Gitanjali Group

ARTICLES
Three Years of
Currency Futures
Mr Shrikant Subbarayan, Director
Greenback Financial & FX Services Pvt Ltd.
Currency Futures -
Evolution of Currency Futures
Objectives
USDINR
l p a i r t ra d i n g w a s
In a landmark move on 6th Aug. '08,
launched
RBI had allowed trading of currency
futures in recognized stock Calendar Spread allowed
l
exchanges. In RBI's words the main

EURINR,
l GBPINR, JPYINR pairs
objective of allowing currency
allowed in Currency Futures
futures was to provide wider
hedging opportunities that would Exchange traded Options allowed
l
enhance the flexibility for the in USDINR pair

residents to manage their currency
risk in a more dynamic way.
Moreover, it was also observed from
International experiences that the
exchange traded currency futures
contracts facilitate efficient price FX-OTC Vs CF
discovery, enable better OTC CF
1,400.00
counterparty credit risk 1,200.00
Volumes (USD Billions)
management, wider participation, 1,000.00

trading of standardized products, 800.00
reduce transaction costs, etc. 600.00
Initially trading was limited only to 100.00

200.00
USDINR pair and after three years
-
now we have three more currency
Q4 910
Q2 112
09
Q1 809
10
11
11
Q4 809
Q2 810
10
12
11
Q1 011
pairs viz. EURINR, GBPINR and

08
09
10
10
09
11
10
0
1
0
0
1
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
Q3
Q2
Q1
Q2
Q3
Q3
Q4
JPYINR being traded. Quarter

ARTICLES
Currency Futures - volume of above USD 1163 Billion in

the same period as per the data
Performance Score Card available from CCIL (The clearing
None of the mentioned objectives Corporation of India Limited). The
of efficient price discovery, better gap between the OTC & the
counterparty credit risk Currency Futures markets are
management, wider participation, reducing considerably. Neither the
trading of standardized product, commodities markets nor the
reduced transaction costs can be equities market have seen such a
evaluated if volumes are huge growth in volumes in the initial
insufficient. Hence, volume is a key three years of their existence. While
indicator to analyze the the growth has been commendable
effectiveness of Currency futures. & spectacular it is also to be noted
that 95% of the total volumes are
Volumes: The Currency Futures still confined to the USDINR pair. MSMEs have benefited a lot with
market in India has grown
transparent & fixed transaction
consistently and the combined On the other parameters too, the
costs which are much lower when
volumes of the major three currency futures markets has
compared to the OTC markets. With
exchanges clocked more than USD evolved better than expected. The
the exchanges being the
630 Billion in the quarter ended near month contracts liquidity is
counterparty to participants along
September 2011, rising from around high with bid- ask spread as low as
with stringent margins & Marked to
the modest volumes of USD 20 0.25 paise. Highly transparent price
Market (MTMs) practices counter
Billion seen in the final four months quotes coupled with rising volumes
party credit default risk is
of 2008 after its initial launch. The are helping in efficient price
completely eliminated.
traditional OTC markets saw a discovery of the markets. SMEs &
Objective Performance Scope for Improvement

Volumes Huge Liquidity seen in Near Longer Tenor Contracts still Illiquid
month contracts
Efficient Price Discovery Bid - Ask spread as low as 0.25 paise
Counter Party Credit Stringent Margins & MTM systems allow
Risk Management exchanges to eliminate Counter Party Risk
Wider Participation Most volumes still limited to Lots to Improve
speculative trades
Transaction cost Much lower than OTC markets
Price Transparency Highly transparent vis a vis the
OTC markets.

ARTICLES
Scope for Improvements the limits were based on limits and corporate houses in the recent past.
MTMs were not stringent. Now with
Study of financial crisis from the
Corporate Participation: The the recent guidelines from RBI on
developed economies including the
exchanges so far haven't seen much hedging through Forward Markets,
US & Euro zone would show that all
participation from corporate due to corporate should look into having an
major financial crisis originated
two major reasons - alternate hedging platform apart
from the OTC markets. Whether, it
from the traditional Forward
i) The Currency Futures markets may be the sub-prime crisis of the
contracts.
were in their nascent stage & the US which shook the global financial
market volumes were not deep markets or the current European
enough to absorb the corporate
RBI, a proactive regulator:
debt crisis which threatens the
volumes. The Reserve Bank of India has time survival of the Eurozone are results
and again proved itself that its of the inability of the OTC markets
ii) The corporate also shied away
moves are in the best interests of in efficient price discovery and
from the currency futures
the Indian corporate. While the RBI recognizing resultant MTM losses.
markets due to the upfront
was seen very conservative, it This causes financial bubbles which
margin requirements and daily
proved to be right when the Indian eventually causes financial
MTMs.
banking system was one among the destruction.
To take positions in the exchange, least affected by the sub-prime
RBI through its recent move to
corporate needed to pay upfront crisis, thanks to the stringent risk
arrest one sided speculative bets
margins and they also need to shell management regulations by the RBI.
against the Rupee in the onshore &
out Marked to market (MTM) The RBI's recent directive to banks
offshore markets came up with
losses, if any, on a daily basis which on derivatives is seen as a right step
measures to curb speculation in the
affects their working capital. While forward to avoid the repetition of
OTC markets. RBI made a master
many corporate think of this as a the derivative mess that took a toll
stroke by literally banning
disadvantage they fail to realize that on the financial health of major
it is an inbuilt risk management
system whereby the decision
making process on loss making
positions are quickly made & allows
them to retune their strategy with
the market. Hence, the margins &
MTMS work in favour of the end
user if observed keenly.
Even though, the margin based

limits & daily MTMs are standard
practices that avoids risk of default,
it was comfortable for corporate to
work with the OTC markets where

ARTICLES
speculation in the onshore OTC Increased Volatility around 5 paise in the quarter ended
markets. While not allowing Dec. '07 to around 17 paise for the
cancellation & rebooking of forward Intraday
l moves averaging 40 same period in 2011. Also, the
contracts, RBI also reduced the past paise in Q4 of 2011 against 12 intraday price moves has shot up by
performance limits of importers, paise in Q4 of 2007 230% from 12 paise to 40 paise in
through which probable payments Gaps between
l close & next day the respective periods. With this
were hedged. It also reduced the open has shot up to 17 paise from increased volatility, corporate in the
Net Overnight Open Positions of 5 paise in the respective periods SME & MSME segments are more
Primary dealers. With this move, often caught on the wrong foot.
RBI leads the way in arresting Hence, it would be prudent to
overleveraged speculative bets in Way Ahead: increase the currency exchange
the OTC markets & indirectly timings to 11:30 pm when the
Exchange Timings: RBI's twin
directing speculators to move London & New York markets close.
objective in the effective
towards the efficient & disciplined With Indian commodity markets
management of the exchange rate is
exchange traded products. RBI has already operating in the same
to reduce volatility & to maintain
shown the way to the western timings along with clearing &
the Real Effective Exchange Rate
regulators that the initial step in trading infrastructure already in
(REER) of the rupee. With increased
preventing financial catastrophes is place, the transition could be
globalization and the evolving debt
the shifting of products from OTC effected very easily. As the markets
problems arising from the
markets towards regulated would be able to react to global
developed worlds, the overnight
exchanges and it has showcased & changes almost instantaneously, the
volatility of the exchange rates have
managed the effective transition of management of risk arising out of
considerably increased. The average
the same. such moves can be dealt within the
gap between a day's closing price &
trading hours rather than reacting to
the next day's opening price in the
the same in a panic mode in the
USDINR has increased by 240% from
next morning. This will also reduce
the frequency of intervention from
the regulators to curb volatility and
thus meet an important objective.
Wider Participation:
The regulators, exchanges, brokers

& the industry associations need to
work together towards spreading
awareness regarding the benefits of
the Currency Futures & help in the
increased participation. This
knowledge up gradation process
would particularly help the SME &

ARTICLES
MSME segments who bear the markets to the Exchange Traded

brunt of wild swings in currencies. Currency Futures markets.
Regulatory Oversight: Currency futures markets now have

sufficient volumes to accept the
The regulator must ensure the
corporate hedging requirements.
highest level of governance among
Corporate would be well advised to
the exchanges. Rationalization of
accept the inherent advantages of
transaction costs is a must and
risk management by way of
uniform transaction costs should be
margining & mark to markets which
adopted by all the exchanges.
only the currency futures market
Delivery: offers. This will augur for a healthy
corporate India and hence a
In due course, delivery on the
disciplined & a healthy financial
exchanges can be facilitated. While
system.
this may seem strange, international
models are already in place where To summarize, Currency futures has
both cash settlements as well as come a long way in these three
settlement through delivery co- years and we believe that the RBI's
exist. Such a market will ensure vision of "Currency Futures is the
complete migration from the OTC way ahead" will become a reality in
the near future.
Shrikant Subbarayan is widely regarded as one of the key figures instrumental in developing financial markets in
India. He has been closely associated with the setup and launch of both the currency and commodity futures
markets. A unique 360 degree understanding of the Exchange perspective, Industry perspective and a Trading
perspective has helped him create a niche in the marketplace. This coupled with practical insight has helped him
earn respect in industry circles.
He is currently Director, Greenback Financial & FX Services Pvt Ltd.
Greenback Financial & FX Services Pvt. Ltd (GBFFS) is a trading member of the currency futures exchanges (NSE,
MCX-SX & USE) in India since 2008. GBFFS has been promoted by Greenback Forex Services Pvt. Ltd. - one of India's
Mr Shrikant Subbrayan most renowned consultants in the area of Currency & Interest Rate Risk Management since 1995 and currently
serving more than 1500 corporate clients across India.
Director
Greenback financial & GBFFS provides hedging/trading solutions for corporate houses through the Currency futures platform. Solid
FX Services Pvt. Ltd Research, Sound Understanding & Comprehensive Knowledge of the Global & Indian FX markets gives us an edge
over other players in the market.

ARTICLES
Currency Derivatives
in India: From Infancy
to Maturity
Dr Alok Pandey
Director - Advanced Studies
ICWAI
W arren Buffet in the Berkshire

Hathway Annual report
2002 calledDerivatives "financial
in the international currency
markets by bringing, hedgers,
arbitrageurs and speculators
foreign currencies as possible in
order to facilitate foreign trade and
investment. Such a wider market is
weapons of mass destruction, together.Milton Fried man when almost certain to develop in
carrying dangers , that while now commissioned to study the response to the demand. The major
latent are potentially lethal". He introduction of currency derivatives open question is where. The U.S. is
however had praised derivatives markets in 1970's had said: a natural place and it is very much in
later in his annual letter to the interests of the U.S. that it
"Changes in the international
shareholders of Berkshire Hathaway should develop here."
financial structure will create agreat
published in March 2008. The
expansion in the demand for foreign The Reserve Bank of India in its
dichotomy of derivatives use is
cover. It is highly desirable that this report on introduction of currency
however not restricted to Warren
demand be met by as broad, as futures published in April 2008,
Buffet only. There are strong views
deep, as resilient a futures market in however used cautious optimism
worldwide for and against them
and said,
with reactions ranging from
prudence to caution and at times
downright imposition on restrictions
on their usage.
The currency derivative markets are

an essential component of currency
risk management in the modern
international system and despite all
the drawbacks and criticism of other
exotic financial derivative contracts
have been responsible for liquidity

ARTICLES
"While prima facie dollarisation introduced in India in 2004 and did blistering pace worldwide from a
does not appear to be a significant not lead to any major problem level of $ 1,490 bn in 1998 to
probability, it is reasonably clear either for the Indian currency or the $3,981 bn USD by April 2010 as per
that costs of dollarisation could far financial system as a whole. The OTC the BIS triennial survey, a CAGR of
outweigh the benefits for an markets worldwide are much bigger close to 9% over a decade. Despite
economy like India's, as the country worldwide than their exchange financial crisis the growth was up
has neither faced nor is facing traded versions. However, since the stellar 142 per cent in 2010 largely
high/hyper inflation or a loss of introduction of currency futures in a due to Indian market that accounts
confidence in its currency.The initial country like India we have seen for 71 per cent of the turnover.
trends are encouraging with strong upswing in the volume of MCX-SX registered 294 per cent
volumes considerably higher than traded currency derivatives which is year-on-year growth in the number
expected by policy makers and much higher than the activity in the of contracts traded, while NSE grew
regulators. The volumes are OTC segment. 221 per cent. Currency futures
expected to be higher as the volatile accounted for most of the currency
Currency derivatives on the whole
climate for major currencies derivatives volume in India since
make up the smallest segment of
continues." currency options have been
the global derivatives marketand
introduced only recently.
It is to be noted that currency over the daily average turnover grew at a
the counter currency options were
Global foreign exchange market turnover

4,500
Foreign exchange instruments Spot transactions2 Outright forwards2
Foreign exchange swaps 2
Currency swaps Options and other products3
4,000
3,500
3,000
In billion USD
2,500
2,000
1,500
1,000
5,00
0
1998 2001 2004 2007 2010
Year (Actual)

ARTICLES
The trading is allowed in four

currency pairs of dollar-rupee, euro-
rupee, pound-rupee and yen-rupee
pairs, it is the dollar-rupee pair that
is most widely traded and accounted
for almost 90 per cent of the
turnover in 2010. Among the three
exchanges namely NSE, USE and
MCX -SX the performance has been with NSE look like emerging global
mixed. The USE started aggressively leaders in terms of the number of
in the currency derivatives market contracts traded in currency futures
only to lose out to MCX-SX later. The in 2010 with 885 million contracts
two Indian exchanges MCX-SX along and 726 million contracts
respectively.
In terms of the notional value of the

Currency distribution of global foreign exchange market turnover vis a-vis India
contract traded, however, Indian
450.0%
exchanges are not the leaders. That
400.0%
spot is occupied by Chicago
Percentage change ever three year
1.3 US dollar
350.0%
Euro Mercantile Exchange group that
300.0%
Japanese yen
traded contracts worth $29,979
250.0% Pound sterling
Hong Kong dollar

billion as against $908 billion traded
200.0%
Korean won on MCX-SX. The same is the story of
150.0%
100.0%
Singapore dollar
Indian Rupee along with the Indian
Chinese renminbi
50.0% Brazilian real

economy despite its robust growth
0.0%
Indian rupee figures remains a fringe player in
-50.0%
2001 2004
year
2007 2010
terms of global trade, investments
-100.0%
and financial linkages with rest of
the world.
Golden foreign exchange market turnover by currency pair Currency derivatives markets are
US dollar/euro US dollar/yen US dollar/sterling Euro/yen Euro/sterling Euro/other still in their infancy in Indiadespite
35 4.5 the claims by regulators such as
30
4 SEEBI and RBI that the markets have
3.5
matured. The OTC market has been
Doller vis-a-vis Euro, Sterling and yen
Euro vis-a-vis Sterling and currencies
25
3 there in the form of forwards swaps
20
2.5
and options for some time. The
2
15 traded derivative markets in
1.5
10 currencies started three years ago
1
5
with NSE, MCX-SX and USE trading
0.5 currency futures and later on
0 0
2001 2004 2007 2007 currency options.
Year

ARTICLES
Currency and instrument distribution of Indian Foreign exchange

Inter exchange competition needs
market daily turnover (April 2010)
to be given a boost by the
9.91%
regulators to ensure that these
0.10%
exchanges keep investing in new
18.02% trading technology, better risk
35.84% Spot
management processes and follow
Outright forwards international practices in corporate
Foreign exchange swaps
Currency swaps governance. Promoting monopoly
Option and other instruments
during the stages of infancy of
currencyderivative markets would
be disastrous for end users of these
36.14%
intermediaries and newest market
infrastructural institutions. The
The markets lack product innovation the appetite of Indian businesses Indian investor in the equity market
with plain vanilla being the current and bank with respect to currency greatly benefitted from increased
flavor in currency option and only trading and risk management is competition among the exchanges
two out of these these three rapidly growing. The evidence lies in during the nineties largely due to
exchanges being allowed to offer the fact that the USEwithin one year open transparent and clear
them. Too much caution can kill the of commencement of operations in objectives set by the regulators to
innovation and creation of capacity currency futures trading clocked an increase the depth of the market
of risk management in these average turnover of Rs 23,100 through higher participation of
systems in infancy.Curiousity may crores(September 20,2010) leaving common investor. Technology
kill the proverbial goose but caging the other two older exchanges far allowed benefits such as
the goose may make it unhealthy. It behind. dematerialization and online
may never become strong enough
to fly and probably too ill to be
consumed.
The Securities and Exchange Board

of India (SEBI) in 2010 had given
approval to the National Stock
Exchange (NSE) and United Stock
Exchange (USE) to commence
trading in currency options
contracts. However, MCX Stock
Exchange (MCX-SX) continued to
remain barred from launching new
products including currency options.
The regulator must understand that

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trading. The investors, corporates, clients holding international

banks and regulators all are portfolioswhich is a reality for NRIs
therefore expecting similar and FIIs today and with rapidly
approach from regulators so that changing international outlook of
they may also gain from technology Indian establishment may become a
driven, low cost foreign currency reality for Indian investor looking
transactions from Indian currency forward to hold international
derivative markets. portfolios.
It is highly desirable that all players Practices such as prime brokerage

be accorded same status and be and white labeling may find more
given the freedom to offer a wider prominent use for such segments by
set of product portfolios. This will the market makers and large foreign
help the exchanges to attract exchange dealers. The
human resources and talent to build enhancement of liquidity in fixed
up financial engineering expertise income markets, introduction of and forecasting of actual and
for better risk management in the options on trade weighted indices implied volatility numbers. Thisalso
volatile currencyenvironment in a and development of Credit improves the validity of VaR
crisis prone world economy. With Derivatives in India along with numbers and makes easier for
bigger product set would come continued growth of Non dealers to advise the hedgers trying
process innovation. Internationally Deliverable Forward (NDF) markets to manage the downside of the
over the past three decades several are some parallel innovations which payoff. The traded options shall also
innovative practices for clearing and will support the growth of currency allow better price discovery in long
settlement have been adopted. derivative markets and in return run and make treasury operations
Such practices need adoption and shall help themselves get benefitted viable for Indian banks,
adaptation in accordance with the by innovations in processes in multinationals exporters and
Indian financial environment. The currency derivative markets in India. importers.
demand of foreign currency in India The development of non-deliverable
Accounting and reporting of
has been rising especially in the forward markets has been an
currency derivativesin India largely
High Net worth Individual segment important step which actually
dependent on western formats and
of the population and the medium supported the liquidity in currency
standards. With IFRS becoming
size entities on account of personal, futures and option markets. The
order of the day in many countries
credit and other trade related traded options shall allow better
the accounting standards are being
usage. These segments are the price discovery in long run for the
modified and adapted at a much
ones who may become the real OTC markets as well and make
faster pace worldwide. Very little
users over next decade. The treasury operations more viable for
research is being done in this
currency derivative trading also Indian banks, multinationals
direction in India by academic
allows and supports Currency exporters and importers. One big
institutions and other statutory
overlay services such as advice on advantage of traded currency
bodies to develop the same in
forex aspects of security portfolio of products is better understanding

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Indian context. It is expected that Development of currency markets

studies be undertaken by the are a must for this poor but growing
regulators, industry associations, economy duringturbulent times
statutory bodies and independent when even international financial
researchers to understand the use market structure is under
of currency derivatives for not just tremendous strain. Improving
transaction exposure management market microstructure of the
but also operating and translation fledgling foreign currency markets in
exposurefaced by corporates, banks India, of whose currency derivative
and the foreign exchange dealers. trading is an integral part is a
An annual currency derivative necessity today. Only a vibrant and
survey needs to be conducted in strong currency market can improve
India to ensure that we do not make trade and investment climate for a
currency derivatives weapons of country whose contribution to
economic mass destruction but international trade, investment and
tools of wealth maximization. capital formation is one of the
lowest in the world.
DrAlokPandey is the Director of Advanced Studies at The Institute of Cost & Works Accountants of India (ICWAI). The
ICWAI is a statutory body for regulating and controlling the profession of Cost & Management Accountancy in the
country. Prior to taking up his academic-administrative role at ICWAI he has been a corporate sector executive,
research scholar and a faculty member in premier institutions for 15 years. He has earlier served as a senior faculty
member in Finance Area at Institute of Management Technology, Ghaziabad (IMT, Ghaziabad) for close to a decade
and also National Institute of Financial Management (Ministry of Finance, Govt. of India). His areas of interest in
teaching, training consulting and research are International Financial Management, Financial Derivatives, Treasury
Management and Financial Management. He has co-authored a market bestselling text book on International
Finance entitled 'Multinational Business Finance' (Published by Pearson Education, 2007) and has contributed
Dr Alok Pandey several research articles in refereed national journals and proceedings of International and National Conferences.
Director
He is connected with several stock exchanges, bankers training institutes and treasury divisions of big corporate
Advanced Studies
houses as trainer and consultant. He has also been the nominee of ICWAI on several committees supporting the
initiatives of Ministry of Corporate Affairs, Govt of India.

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Exchange Traded Currency

Derivatives in
India-Road Ahead
Mr K G Mantri, Sr. VP - Corporate Affairs
MAN Industries (India) Ltd
D omestic currency is a medium

of exchange but foreign
currency is a class of asset or
resulted in interesting situation in
which now shadows are moving the
objects instead of objects moving
consumption but more a function of
speculative positions.
Disproportionately large size of
commodity, just like gold silver, shadows. In the current scenario derivatives market has thrown big
shares and securities, land etc. In an outstanding derivative contracts challenges and threatened the very
inflationary economy like India the globally are several times more than existence of several economies in
value of domestic currency keeps the real underlying assets of the world.
falling. Presently INR value is less different classes. For example, the
Despite the above perception on
than one percent of what it was at daily turnover of crude futures
derivatives that they are posing a
the time of independence. In a traded on various exchanges
significant challenge to the global
deflationary economy like Japan it's globally is more than the actual
economists, introduction of
the other way round. In last 40 years annual output and consumption.
currency derivatives in Indian
the Japanese currency has We have seen in the recent past the
securities markets was a right
appreciated more than 400%. price movement of crude is no more
decision at the right time.
a function of actual production and
Derivative markets are devised for
various classes of assets with an
idea of providing a platform for
seamless trading and finest price
discovery. Derivatives are therefore
"shadow Markets" of Real Objects
(Assets). The purpose is very much
achieved. The size of global
economy expanded manifold but
over a period of time the size of
these "shadows" became larger
than life (read real assets/objects). It

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The exchange traded currency efficient platform for their import these unwanted participants but
futures market is an extension of export activities. Imagine a village they provide stability and easy
the already available OTC market, keralite resident Indian is hedging entry-exit to the genuine hedgers. I
with added benefits of greater his monthly receivable from his believe that this category of people
accessibility to potential relative working in Middle East and is more active in our Currency
participants; higher price taking advantage of currency Derivatives Market at present. Large
transparency; high liquidity; fluctuations as well as hedging genuine players are using OTC and
standardized contracts; against the risk. Imagine an SME NDF markets. However, the recently
counterparty risk management exporter is able to discover right announced restrictions by RBI to
through clearing corporation and no conversion price through these curb speculation by corporates in
requirement of underlying exposure exchanges and not burdened by the OTC market are likely to divert
in the currency. inefficient banking system in remote significant volumes to Exchanges
areas. In the globalised business Traded Currency Derivatives.
The Indian Economy started opening
environment where it is becoming
since 1991, but US Dollar remained The growth witnessed in the
increasingly difficult to protect
an alluring asset for the resident currency derivatives market so far is
shrinking margins coupled with
Indians till introduction of currency phenomenal but its only tip of the
volatile currency, the exchange
futures in 2008. In last 20 years, we iceberg. In terms of products,
traded currency derivatives provide
are moving towards Capital Account participation and geographic
a seamless and efficient hedging
Convertibility in a calibrated penetration a lot more is going to
platform.
manner. Exchange Traded Currency happen in the years to come. FIIs
Derivatives is a judicious move in The third category of people are the and NRIs are significant participants
this direction. All those who are arbitrageurs who get the in foreign exchange flows in the
interested in taking long or short opportunity of trading in currency country still they depend more on
position on Dollar, can do so by futures by simultaneous purchase NDF market for their
trading on these electronic trading and sale in different markets taking hedging/arbitration requirements.
platforms. For investors, it is advantage of differential between Their participation in due course will
another assets class. different markets because at any further deepen the markets. Soon
time one or the other market is nationwide launch of 4G services
For those who are engaged in
open somewhere in the world,
import, export or any other foreign
effectively making it 24 hour
currency related transaction; this is
market.
a highly liquid platform for hedging
against the fluctuations in the The forth category of people are
foreign exchange markets. Currently most hated but an integral part of
more than 90% of turnover in any derivative markets. They are
currency derivatives is derived from speculators alias punters. They may
metros but as we move on, the or may not make money but
small town exporters and importers undoubtedly provide depth to the
are going to be the real beneficiaries market. The significant burden of
in long run as local banks can never loss or profit from currency volatility
provide them so much liquid and gets shifted to the shoulders of

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will unfold next level of revolution in the form of margin, client/market

mobile and wireless internet wide open limit restrictions and
technology enabling deeper improved monitoring systems. This
penetration of Exchange Traded single move has the capacity to
Currency Derivative Market in India. transform the shape of currency
trading in the country but at the
The very reason of phenomenal
same time fraught with risk of
growth of currency derivatives is
destabilizing the Economy. The kind
that the participants in this market
of wild moves seen in stock markets
have high degree of faith because
due to FII participation are not
there is no possibility of
uncommon in India and other
manipulation as compared to other
emerging economies; hence every
commodities derivatives. This is
step in this direction has to be
largely because of the fact that the
treaded carefully.
currency markets world over are
near perfect and well regulated and The NDF market accounted for
a handful of operators can't rig the about 50% of dollar-rupee market, foreign currency exposure. This
markets. At the same time, a robust according to a triennial central bank market also derives liquidity from
underlying USD 1.7 trillion economy survey on foreign exchange and nonresidents wishing to speculate
with more than USD 1 trillion of derivatives market activity by the in the Indian rupee without
foreign exchange movement Bank for International Settlements exposure to the currency and from
annually in and out of the country in (BIS) released in 2011. An NDF is a arbitrageurs who try to exploit the
the form of imports, exports, cash-settled, short-term forward differentials in the prices in the
services, remittances, investments contract on a foreign currency. The onshore and offshore markets.
etc is a strong backbone of the offshore Non Deliverable Forward Though foreign investors can now
currency derivatives. (NDF) market in the Indian Rupee transact in the onshore Indian
has been witnessing increasing forward markets with greater
Indian Currency derivative markets
volumes. The average daily trading flexibility, allowing them access to
too have many challenges.
volume of approximately USD 1000 the exchange traded currency
Significant volume of these markets
million during 2010-11 in the NDF futures platform would further help
is eaten away by NDF markets
markets for Indian rupee. Most in getting the volumes in the NDF
because of restrictions on the
major foreign banks offer NDFs, but market onshore and enhance the
participation of NRIs and FIIs.
Indian banks are barred from doing liquidity on the domestic exchanges.
Sooner or later RBI and Government
so.
will decide to open these markets The positions limits for clients
for the two vital categories of These markets have evolved for the trading in this segment are
participants. This in fact, Indian Rupee, as for other emerging restricted which is major roadblock
tantamount to Capital Account market currencies, following foreign in the development of an efficient
Convertibility for all intents and exchange convertibility restrictions. and in depth market with huge
purposes hence the move will come It is serving as an avenue for non- participation from all the segments.
very slowly. However, this is possible domestic players, private companies There is thus a felt need to enhance
with in built checks and balances in and investors in India to hedge

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these limits in terms of percentage Ever increasing Cost of transaction is Either it should have full platform or
of open interest. For larger another cause of concern; revenue it should be shut till it puts its house
exporters and importers these limits hungry government and profit in order.
may be restrictive and chances are hungry exchanges are always ready
To sum up, currency derivative
that they might continue to deal in to kill the goose which lays golden
markets in India are at nascent
the OTC market, where there is no eggs. The temptation to make more
stage. So long as the shadow is
limit on the hedges. money in short term by these
supporting the object (Real
monsters has to be kept in check.
Another challenge is to provide Economy) and not moving it, there
They too will get their share as the
liquidity in the long dated contracts. should be untiring efforts to
market expands.
There is hardly any liquidity in long develop these markets.
dated futures currency derivative Many corporates using currency
The only worry in India is political
contracts traded on MCX-SX, NSE derivatives for hedging their foreign
hooliganism which is capable of
and USE. Long dated options market currency exposure find the
making any wise move redundant
is virtually non existent even for requirement of margin and
and blunt in the name of killing
USD. Exchanges should promote settlement of daily mark to market
speculation and supporting the
market making in these long dated differences burdensome, especially
dormant socialist ideology. But
contracts to make it an attractive since there is no such requirement
thankfully this has occasionally
place for hedging. for OTC trades.
happened in the financial markets
Despite the fact that Exchanges Last but not least, the regulator in India so far and hopefully will not
have introduced EUR/INR, JPY/INR, should not adopt partisan approach. happen to currency derivatives. The
GBP/INR pairs, they continue to While NSE has been allowed launch hope is not unfounded, because
derive maximum turnover from only of both futures and Options recent sharp depreciation in INR has
USD/INR contracts, here also market segment, MCX-SX has been denied so far not prompted any
making is needed. There is an launching Currency Options. This is enlightened politician to demand
urgent need that crosses are also unfair, if MCX-SX is wrong, it should ban on the exchange traded
introduced in these markets. be banned from futures trading too. derivatives.
EUR/USD and DX will provide As rightly said, a woman can't be
further impetus to the currency partially pregnant; you can't allow
derivatives market in India. an exchange to operate partially.
K G Mantri brings on board 25 years of rich experience with corporates, having worked in major Indian metros and in
UK & Dubai. Prior to Man Group, he has worked with various organizations of high repute.
K G Mantri has a CAIIB from Indian Institute of Bankers, Mumbai and AICWA from Institute of Cost and Works
Accounts of India, Calcutta to his credit. Also, M.Com and LLB from Vikram University.
K G Mantri has a rich experience in Accounts, Finance, Commercial and Corporate Affairs.
Mr K G Mantri
Sr. VP-Corporate Affairs
MAN Industries (India) Ltd.

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Derivatives Market-
Performance Account
Dr V Shunmugam, Chief Economist
MCX Stock Exchange
W ith the Indian economy

driving itself in globalization
and liberalization, there was a
Derivatives A Historical
strong need for policy making to Account:
strengthen the support institutions
With a compounded average annual
including that of markets. One
growth rate of 119 percent over a
among them being currency
period of CY 2009 to CY 2011, the
markets, the regulators pushed
daily turnover in the exchange
forward with reforms of the
traded currency derivatives calibrated reforms of our joint
currency markets leading to the
increased to the highest level of INR Regulators RBI and SEBI, in line with
formation of the exchange traded
1,091 billion on 27 July 2011. the concentration in our external
currency derivatives segment during
Despite being a late starter, MCX-SX currency transactions of the
2008. Participants in exchange
volumes continued to scale newer stakeholders and hence the risks
traded derivative markets were
heights with a CAGR of 94 percent associated with it. Towing in line
provided with an opportunity to
during CY 2009 CY 2011 more or with the physical markets, USD-INR
participate in the price discovery
less towing in line with that of the volumes continued to evolve as the
mechanism of the exchange market.
CAGR of 119 percent for the major currency pair in terms of
With more than three years since
markets as a whole. The currency traded volumes. Among the
the inception of the exchange
derivatives segment which started currency pairs, USD-INR futures
traded derivatives segment, below
with only the USD-INR futures accounted for 96.1 percent
is an effort to account for the
contracts to trade with, saw the compared with 2.0, 1.2, and 0.7
growth of the exchange traded
entry of futures contracts in three percent respectively of the EUR-INR,
currency derivatives segment and its
other major currency pairs namely GBP-INR, and JPY-INR currency
benefits to the ecosystem and its
EURO-INR, GBP-INR, and JPY-INR, on futures of the total volume during
stakeholders.
Feb 01, 2010, thanks to the December 2011. With the successful

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launch of the currency futures on towards the formal clearing houses

the exchange traded platforms, the though this has not been achieved
regulators allowed trading in till date. While the NDF markets
options in USD-INR and the same enabled risk sharing among eligible
was launched to the market domestic and the foreign
participants on Oct 29, 2010. participants, the domestic markets,
Comparatively, since their inception due to physical exposure
till date the exchange traded restrictions for participation in the
currency options markets witnessed OTC forward markets, OTC
Spot/OTC Forward market and to a
an average daily turnover of Rs 5000 stakeholders who had one more
limited extent offshore Non-
Crores compared with that of Rs avenue in the form of exchange
Deliverable Forward markets While
37,678 Crores of turnover in the traded markets, shifted the risks
the onshore markets are largely
exchange traded currency futures amongst themselves with each one
populated by the banks and
markets. having cash market exposure on
financial institutions, the offshore
either of the sides of the market.
Alternative Markets market participants, it is reported,
According to the recent BIS Trienniel
consist of various domestic and
OTC/Forward/NDF: Survey, during April 2010, turnover
foreign stakeholders with access to
in the Spot, Outright Forwards,
The other markets in currency that NDF markets predominantly
Foreign Exchange Swaps, other
have already been in existence and originating from New York, London
Swaps, Options and other
serving the purpose of spot and and Singapore. However, most of
instruments accounted for 35.8,
forward transactions of the the domestic stakeholders are
36.1, 18.0, 0.1, 9.8 percent
stakeholders prior to the launch of limited to participation in OTC spot
respectively of the total average
exchange traded currency markets for their immediate forex
daily turnover.
derivatives include the onshore OTC needs and to the OTC forward
markets for their future and risk Economic Significance of
management needs. The key
differentiator between the onshore Markets:
and offshore markets is that the Market for currency enables
offshore NDF markets are purely participants to exchange one for
dollar settled and the onshore another at a rate agreed upon
exchange traded markets are only between them and/or share risks in
rupee settled except in cases where future exchange rate movement
the trades end up in delivery of with other participants in the
USD. Whereas the onshore markets market. To sum it up, a currency
are regulated by the central bank, market either enables exchange of
the offshore markets are largely currency or enables the
unregulated and clearing of trades stakeholders to manage/transfer
in offshore markets is now moving risks in the same. While it does so,

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the relevance of the market lies in manage the same cost effectively in currency derivatives market has
how widely participated the market a plain vanilla futures market. To put been declining since the inception
is and how efficiently (or cost it simply, the cost efficiency of of trading. Though the BAS in the
effectively) it enables the participating in a market is a other markets have also improved
participants to manage their function of the spread in the bid and over a period in time, not only that
currency related risks. Hence the ask prices in a plain vanilla the decline in the spread has been
market and its economic derivatives market. Technically rapid in the USD-INR futures market
significance can be measured in called as Bid-Ask Spread (BAS) is a but also that the spread is at the
terms of the efficiency with which it measure by which the efficiency of lowest possible level. However,
enables the exchange of currencies the futures markets can be taking efficiency to the next level
between the stakeholders. However, compared. BAS could practically one would have to look into the
an exchange traded derivatives range from anything to one tick depth of market. Depth refers to the
market which settles in cash enables (allowed price increment) level. In availability of the lot size at varied
risk management for its markets trading on similar contracts, price points so that the entry and
participants. While doing so, the ultimate efficiency is said to have exit of a participant happens with a
efficiency of an exchange traded been achieved if the price minimal disruption to the markets
currency derivatives segment lies in differential on an average at any price discovery process. The
how much cost effectively they can time during the trading hours minimal or nil the disruption the
manage their risks. Cost of risk existed at near to one tick level i.e. most efficient the market would be
management is the sum of cost of as low as 0.0025 paise and vice versa. . Despite being a
participating on an exchange traded standardized lot referring to a lot
The economic efficiency of the
platform in addition to the cost size of USD1000, with increasing
markets has improved since
incurred while at the market i.e the depth of the markets and the lowest
inception. The BAS of the MCX-SX
price fluctuation and the ability to possible BAS, medium sized hedgers
could cost effectively hedge risk
exposure on a real time basis. As the
market gathers mass in terms of
average order size or the depth, it
could help stakeholders with larger
exposure requirement of more than
USD 1 million with and yet not
moving the market equilibrium in a
significant way. There have been
several instances where the order
sizes have far exceeded the USD 1
million during the past two years.

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Exchange Traded varied modes of connectivity back of the other established

depending on their needs. As on financial market intermediaries, the
Currency Derivatives - December 31, 2011, there are 751 lot size and the efforts of MCX-SX in
Reaching out to wider members of the exchange located taking the product to the
stakeholders: across various centers of the stakeholders through various
country through which the outreach programs made it a widely
Developments in Information and stakeholders can have access to accepted product among the
Communication Technology had market to fulfill their risk market stakeholders. Additionally,
enabled the participants to connect management requirements. existence of well developed
to the exchange traded currency Depending on cost expectations, a financial markets in stock and
market places depending on the currency hedger ranging from a commodities also helped the
need for speed and reliability of the small time exporter to a large stakeholders to manage their
connectivity. Thanks to the spread manufacturing firm can access the currency related risks in an efficient
of telecom network, exchange exchange traded currency manner.
traded services are available derivatives market through a variety
through a large number of members of ways to manage their currency The way forward:
of the MCX-SX located in over 673 exposure risks. Though the market
Being the support institution, the
centers connecting a wide variety of intermediation in the currency
ultimate aim of the policy makers
retail participants with a choice for derivatives segment rode on the
behind the launch of exchange
traded currency derivative markets
has been to strengthen the market
and to make it widely participated
so that the economy as a whole,
and particularly those having
currency expsoures can effectively
use a market determined exchange
rate for the hedging requirements
(this is a negative statement and
hence I am removing this) The
growth in terms of volumes and
participants in the Exchange Traded
Currency Derivative Segment would
improve the process of assimilation
various global and domestic
economic information into the
markets while it discovers its
exchange rates. While doing so,
information is best incorporated if
done on a real time basis. If not 24

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hours in a day, extension of market cost effective market for

timings in a day would help participants with risk management
incorporate key economic needs. With all regulatory tools in
information from the developed place added with effective
markets of EU and US thereby monitoring undertaken by the
enabling the exporters to negotiate currency exchanges would pose no
trade deals with their additional risks while adding value
counterparties of the west and to the participants in terms of
secure their realization on a real- providing them with an opportunity
time basis. Extension of trading to manage currency risks on a real
hours would also help participation time basis rather than the current
in the exchange traded currency practice of carry over besides
derivatives markets to mature in improving the efficiency of the
terms of reflecting information into process of price discovery in the not only broad base the Exchange
markets and thereby become currency futures segment. Traded Currency market but also
efficient in their price discovery Theaugmented outreach efforts of would take th markets to further
process, besides remaining as the the exchanges and regulators would heights in future .
Dr. V Shunmugam is the Chief Economist at MCX Stock Exchange Pvt Ltd. (MCX-SX), Mumbai. Having obtained
extensive experience in economic research, commodity and currency markets and policy analysis, his key
responsibility as the Head of Research at MCX-SX is to analyse market data and trends and informing market
participants, regulators and policymakers about how the markets are trending and, therefore, the course that ought
to be taken in line with the changing global and domestic socio-economic and political needs.
As an expert on forex and commodity markets, Dr. Shunmugam also propagates the need and benefits of hedging
risks in foreign currency on the exchange platform via his articles, white paper, case studies, lectures and speeches
etc, for various market participants like corporates, SMEs, importers and exporters, among others.
Earlier, Dr. Shunmugam was the Chief Economist at the Multi Commodity Exchange of India Ltd. (MCX), and as the
Dr V Shunmugam
Head - Economic Analysis and Publications Division, he analysed commodity market trends, regulations and policy
Chief Economist
issues and kept the stakeholders updated about the same.
MCX Stock Exchange
Dr. Shunmugam regularly contributes research papers, analyses, articles, etc. on subjects ranging from commodities
to capital markets to issues related to trade policy, financial markets and the recent global financial crisis in national
and international publications of repute, including journals, books, financial dailies and trade publications.
Prior to joining MCX, he was an Agricultural Specialist at US Department of Agriculture (USDA), where he spent more
than 8 years.
Dr. Shunmugam has a Ph. D. in Agricultural Economics from Indian Agricultural Research Institute, New Delhi.

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Indian Currency Markets -

At Cross Roads
Mr Jagannadham Thunuguntla
Strategist & Head of Research
I ndia's financial market has been

increasingly getting integrated
with the rest of the world through
Trading in USD:INR currency futures
contracts started on August 29,
2008 at NSE, on October 1, 2008 at
The currency derivatives segment
on NSE and MCX-SX has witnessed
an increasing growth over time. At
increased trade and finance activity. BSE and on October 7, 2008 at MCX- the end of 2010-11, total turnover
This has led to a demand for the SX. BSE has stopped all its at NSE stood at Rs 34,49,788 crore
introduction of exchange traded operations in the currency as compared to Rs 17,82,608 crore
hedging instruments like currency derivatives segment from April 7, in 2009-10, indicating an increase of
futures and options to manage 2010. Futures on 3 additional 93.5 percent over the year. MCX-SX
foreign currency exchange risk in currency pairs, namely, EURO:INR, witnessed an increase of 115.7
addition to existing OTC products. GBP:INR and JPY:INR were percent in trading volume during
With electronic trading and efficient introduced at NSE and MCX-SX on 2010-11 and turnover at MCX-SX
risk management systems, exchange February 1, 2010. Trading on all was Rs 41,94,017 crore in 2010-11
traded currency derivatives were currency futures pair started at USE as against Rs 19,44,654 crore in
introduced at different points of on September 20, 2010. Further, 2009-10. USE launched its trading
time through four exchanges, options on USD:INR, were platform on September 20, 2010.
namely NSE, BSE, MCX-SX and USE introduced at NSE and USE on The turnover at USE stood at Rs
starting from August 2008 onward. October 29, 2010. 7,62,501 crore at the end of 2010-
11.
MCX-SX NSE USE
Year No. of Turnover Open No. of Turnover Open No. of Turnover Open
Contracts (in Rs Crs) Interest at the Contracts (in Rs Crs) Interest at the Contracts (in Rs Crs) Interest at the
Traded end of month Traded end of month Traded end of month
(in Rs Crs) (in Rs Crs) (in Rs Crs)
2008-09 29,847,569 148,826 990 32,738,566 162,563 1,313 NA NA NA
2009-10 408,166,278 1,944,654 1,951 378,606,983 1,782,608 1,964 NA NANA
2010-11 903,185,639 4,194,017 3,706 749,602,075 3,449,788 13,690 167,772,367 762,501 109

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USD-INR futures dominate the contracts in currency derivatives Options, which has consistently
market share in terms of number of segment followed by USD-INR increased its market share.
Market Shares of various products

The percentage market shares of various products are as follows:
Month USD-INR Futures EURO-INR Futures GBP-INR Futures JPY-INR Futures USD-INR options
Apr-11 94.90 3.80 0.80 0.50 0.00
May-11 92.90 5.70 0.80 0.60 0.00
Jun-11 93.10 5.80 0.60 0.50 0.00
Jul-11 93.10 5.70 0.70 0.50 0.00
Aug-11 93.90 4.60 0.50 1.00 0.00
Sep-11 98.00 1.30 0.30 0.40 0.00
Oct-11 98.90 0.70 0.20 0.20 0.00
Nov-11 96.10 1.30 0.40 0.30 1.90
Dec-11 95.00 1.60 0.40 0.40 2.60
Jan-12 93.30 2.40 0.60 0.30 3.40
Feb-12 91.10 1.80 0.50 0.40 6.20
Mar-12 86.40 2.10 0.60 1.00 9.90
The graphical representation of the market shares is as follows:

120.00
100.00
80.00
USD-INR Futures
60.00 EURO-INR Futures
GBP-INR Futures
40.00 JPY-INR Futures
USD-INR options
20.00
0.00
1 1 1 1 1 1 1 2
p r-1 y-1 n-1 l-1 g-11 p-1 ct-1 v-1 c-11 n-12 b-1 r-12
a
A M Ju Ju Au Se O No De Ja Fe a
M
Number of Registrations of Trading Members and Clearing Members in
Currency Segments of NSE, BSE, MCX-SX and USE
Number of Registrations
at the end of March, 2011 NSE BSE MCX-SX USE
Trading Member 760 161 742 339
Clearing Member 172 32 114 49

ARTICLES
Rupee Weakness during 2011), this ratio of "Forex

Reserves to Total External Debt"
2011 and debate on is about 90.8. This indicates that
possible RBI intervention the total forex reserves of India
are about 90.8% of the total
1. The steep rupee depreciation external debt. To put in other
has been occupying lots of words, the total forex reserves
thought process in the minds of are lower than that of total
the market participants and external debt.
Indian corporate circles.
6. Where as in the year 2007-08,
2. This rupee depreciation has this ratio was at 138. Meaning 7. However, considering the
opened up debate regarding the thereby, the total forex reserves current ratio of 90.8, this time
possible RBI's intervention to of India were 138% of total the ammunition of RBI is
support rupee. external debt. To put in simple restricted in handling the crisis.
3. However, close observation of words, India had buffer of This time India has lesser forex
some of the macro ratios can excess forex reserves over and buffer to handle the shocks of
give some perspective regarding above total external debt to 2011/12 crisis. Until now, the
whether RBI can intervene or handle the global economic European crisis has not
not. shock of 2008 crisis. Such excess completely unfolded. The
forex reserves has also helped European crisis is still in early
4. There is a ratio of "Forex RBI to effectively manage the stages, and Indian rupee has
Reserves to Total External impact on the Rupee during the already went below 2008
Debt". This ratio indicates the 2008 crisis. Hence, in the worst depths. If the European crisis
total forex reserves as % of total depth of 2008 crisis, the rupee completely unfolds from here,
external debt. has weaken to just Rs 52.17 / $. RBI may find it difficult to
withstand the shocks on Indian
5. Currently (as per the latest data
currency.
available as of 30th September
Year Forex Reserves External Debt Ratio of Forex Reserves to Total

(in US$ Bn) (in US$ Bn) External Debt
2006-07 199 172 115.6
2007-08 310 224 138.0
2008-09 252 225 112.2
2009-10 279 261 106.9
2010-11 305 307 99.5
End Sep 2011 297 327 90.8

ARTICLES
The pictorial representation is 5. Hence, this additional burden of borrowed in Indian rupees
as follows:
Rs 31,200 Crores on ECB forex instead of ECBs.
coversion, can result into
9. The companies who would have
"Difficult" corporate results.
hedged such dollar exposure
Amount (in US$Bn)
6. ECB used to be available at can weather through this sharp

about 5-7% interest rates, rupee depreciation. However,
where as Rupee denominated the companies who would have
loans from Indian banks were unhedged their exposure, are
available at 12-14% interest literally sitting on "ECB Time
rates. Hence, several Indian bomb".
corportates have chosen ECB
Rupee Weakness and
route for borrowing instead of Euro Crisis and Impact on
ECBs Timebomb Indian rupee loans, in the Indian Rupee
anticipation saving about 5-7%
1. During the calendar year 2011,
of interest cost. The problem in various Euro region
Indian corporates have raised
countries is quite severe. For
about US$ 30 Bn of ECB 7. However, such Indian
example, the total sovereign debt of
(External Commercial corporates are realizing now the
Greece is about US$ 500 Bn, that of
Borrowing). That is, about Rs side effects of non-rupee
Spain is about US$ 1.2 Tn, and that
1,50,000 Crores. borrowing. In the case of non-
of Italy is about US$ 2 Tn.
rupee borrowing, the forex
2. Between 1st January 2011 and
fluctuation can be very The largest sovereign default in the
31st December 2011, the rupee
punishing, as it is happening history of financial world till date
has moved from Rs 44.67/$
now. was by Argentina in 2001, to the
level to Rs 53.27/$ level. Hence,
extent of US$ 88 Bn. So, in the cases
the rupee has depreciated by 8. Several companies must have
of Greece / Spain / Italy, if there is a
19.25%. learnt now, that they would
default, world has never seen
have been better-off had they
3. This naturally translates into an
increased burden on the Indian
companies in repaying the ECBs.
Such additional burden works
out to US$ 5.8 Bn. That is, an
additional burden of about Rs
31,200 Crores.
4. As per the ICAI guidelines, mark-

to-market losses on forex needs
to be provided as a provision on
each quarterly basis in the
financial statements.

ARTICLES
sovereign default of this magnitude. Crore, has literally held hostage of rupee is Rs 44-47 per dollar. They
Hence, this is unprecedented to that world with 700 Crore population. shall groom their internal talent as
extent. well as exposure in terms of trading
As world has become highly
and hedging caliber to face the
The total sovereign debt of Greece integrated, interrelated and
volatile currencies. They shall
is about US$ 500 Bn. The total interdependent, even India may not
appreciate the relevance of the
surplus funds with IMF is about US$ escape the spill-over effects of
professional advisors to handle the
420 Bn. If IMF bails out Greece, then European sovereign debt crisis.
trading and hedging aspects of
somebody else has to bail out IMF.
While India has enjoyed the benefits currency.
All this naturally raises a valid of globalization during the past 2
question: "Can Euro Survive?" decades, probably this is the time Regulatory Roadmap
we have to see the side effects of
The current day uncertainty makes The role of regulator is highly
that globalization.
one feel that it is difficult for Euro to appreciated in creating a vibrant
survive in the current format. It may currency market over the past 4-5
Awareness about
not fully die, but it may survive in a years. The volumes of currency
handicapped format. People may Currency Trading and trading have went up, ensuring the
like Euro or hate Euro, but no one Hedging shall increase in enough liquidity for the market
can afford the severe implications participants for hedging purposes.
India
that it can have if Euro collapses. All these things have helped in
In that backdrop of precarious adding more number of market
If Euro as a currency collapses, the
global economic situation, the participants in the currency
effect can be quite dangerous. This
volatility in the global currencies can segment.
is because about 28% of the world's
become more severe. As India has
reserve currencies with all the However, one shall remember that
several corporate with significant
global central banks put together is while we have made good
business interests through imports
Euro denominated. Euro collapse beginning in the currency market,
and exports, they shall be careful in
can lead to havoc in these central we have long long way to go to
positioning themselves to handle
banks. become globally influential currency
the volatility Indian rupees.
market.
In the highly interrelated global
Indian corporate shall come out of
economy, other regions of the world
mind set that the range for Indian
will also have to bear the burden, as
there is high degree of business and
trade happens between the regions.
To summarize, the sovereign bonds

in the past used to give "Risk-free
Returns", whereas these days they
are giving "Return-free Risks".
Greece, with a population base of 1

ARTICLES
For the size of Indian economy, the competition is good for everyone to times. The key instrument which is
currency market size is still far too make the products more and more going to witness immediate impact
small. The number of products vibrant. Similar approach can be is Currency. Everybody associated
available also restricted to just 4 considered even in the cases of the with the value chain of currency
currencies USD, EUR, GBP, JPY. As other products, to bring in the market ranging from the regulators,
Indian companies are trading with vibrancy and dynamism in those market participants, traders shall
several parts of the world, efforts products. strive hard in ensuring the effective
shall be made to ensure more and currency market in India.
Further, as the currency market is a
more currencies are also added to
round-the-clock business, the
the product basket of Indian
efforts can be made to increase the
currency market. Especially, the role
duration of the market in lines of
and significance of the Swiss Franc
the commodity market, to capture
has substantially increased in the
the movements in the currencies
global scheme of things. Hence, the
after the European and United
Swiss Franc based trades shall be
States markets open, by the evening
considered for inclusion at the
/ night time in India.
earliest possible.
One other factor which has helped Conclusion

in the significant growth in the
The world's economy is in historic
currency market over the past 4-5
times. India as a country, as an
years is that of the healthy
economy shall prepare to handle
competition between the exchanges
the side effects such unprecedented
in popularizing the product. Such
Jagannadham Thunuguntla is the Head of Research at SMC Global Securities. He is a Chartered Accountant as
well as a Cost & Works Accountant, having securing all India ranks of 3 & 1 respectively for the qualifying
exams.
JT's views are highly sought after across varied media channels. He is well respected for his views and insight of
the market. He has often represented industry bodies in consulting process of the government and the RBI for
subjects ranging from Monetary Policy to Infrastructure Institutions.
In his earlier assignments he has worked with Morgan Stanley India.
Mr Jagannadham Thunguntla
Strategist & Head of Research

INDIAN ECONOMY
INDIAN ECONOMY
AN UPDATE
Box1. Key Facts
The projected GDP growth in FY 2011-12 has been revised downward to 7.0 per cent from 7.6 per cent by the RBI.
l
Since November 2011, inflation has shown moderation with WPI inflation declining to two year low of 7.5 per cent
l
in December 2011.
The moderation in industrial growth has become evident with a slow down in manufacturing sector growth to 4.1
l
per cent for April - November 2011 as against 9.0 per cent in the corresponding period last year.
The World Bank has projected the global economic growth to be 2.5 per cent and 3.1 per cent in 2012 and 2013
l
against its earlier projections (June 2011) of 3.6 per cent for both years.
FICCI projects the GDP growth rate for this fiscal to be marginally below 7 per cent.
l
Economic Scenario the corresponding quarter of cent. Earlier, both IMF and ADB
previous year. This reveals the heavy have projected a moderation in the
Concerns of a significant downturn toll that persistent high inflation, growth prospects for the Indian
in economic activity are becoming rising interest rates and fragile economy on account of base effects
stronger. Indian economy grew at global economic scenario have on and policy tightening.
6.9 per cent in Q2 FY 2011-12, its our growth prospects.
FICCI projects the GDP growth rate
weakest pace in more than two
RBI in its third quarter review of the for this fiscal to be marginally below
years. FICCI analysis shows that
monetary policy revised downward 7 per cent. For the next fiscal too
growth in Q2 of 2011-12 would have
its projections for GDP growth this the growth outlook is not expected
been lower at 6.4 per cent without a
fiscal from 7.6 per cent to 7.0 per to improve unless the global
downward revision in GDP data of
economic scenario changes
significantly.
FICCI's Projection on Growth rates
Projection on Growth rates 2011-12 2012-13
Agriculture 3.3 3.3
Industry 3.5 - 4.0 4.0 - 4.5
Services 8.2 8.1
Overall 6.6 - 6.8 6.7 - 6.8
with downside risks
Source: FICCI Research

INDIAN ECONOMY
As for the global economic growth input cost pressures, as the impact As per the latest FICCI Economic
prospects, the World Bank in its bi- of imported inflation resulting from Outlook Survey, the slippage in
annual report sharply lowered its the rupee depreciation more than fiscal in current may be more than
global economic growth forecast for offset the sobering impact of 100 basis points vis--vis the
2012, citing European financial weakening domestic demand and budgeted fiscal deficit, going by the
turmoil and weak growth prospects softer global commodity prices. estimates. However, more
in emerging nations, including India. importantly, the consensus fiscal
According to RBI, there are upside
The global economy is now deficit estimate in the next fiscal is
risks to the projected inflation rate
expected to expand 2.5 per cent and 5.1 per cent, indicating that the
of 7 per cent for March 2012 from
3.1 per cent in 2012 and 2013 process of fiscal consolidation will
the insufficient supply responses,
against earlier projections (June be long and arduous and it may be
exchange rate pass-through and
2011) of 3.6 per cent for both years. difficult to plough it back to the
suppressed inflation in the energy
levels witnessed prior to the crisis.
segment.
Inflation
There is now an increasing
FICCI estimates shows that the WPI
Persistently high headline inflation consensus that the recent decline in
based inflation rate is projected to
has shown some signs of abatement rupee value (the good news is that
be around 7 - 7.5 per cent by end
in December 2011 which the rupee has ploughed back
March 2012.
decelerated to a two-year low of 7.5 recently on the back of currency
per cent. However, the quarterly supportive measures by RBI and
Fiscal Performance & portfolio inflows in the first
average WPI based inflation rate
during Q3 FY 2011-12 stands high at Balance of Payment fortnight of 2012) is because of the
8.8 per cent as against 9.7 per cent huge Current Account Deficit (CAD).
As a proportion of budget estimate,
in the previous quarter. Inflation in In this context, it may be noted that
fiscal deficit during April-November
non-food manufactured products India is only country with a CAD
2011 was 85.6 per cent and revenue
remains persistently high, reflecting among Asian peers.
deficit was 91.3 per cent.
Performance of IIP
In November 2011, overall growth
in the Index of Industrial Production
(IIP) rebounded sharply on a month
on month basis. The industrial
production grew by 5.9 per cent
against a decline of 5.1 per cent
witnessed in October 2011. During
April - November 2011, industrial
growth as reflected by the IIP was
significantly lower at 3.8 per cent
against 8.4 per cent during 2010-11.

INDIAN ECONOMY
What concerns the most is the the aggregate demand in the inflationary policy objective or
declining trend in manufacturing domestic economy. funding speculative positions in the
sector growth. Average growth in foreign exchange market has helped
the manufacturing sector for April - Liquidity Position & in limiting pressures on short-term
November 2011 slowed down to 4.1 rates.
Financial Markets
per cent as against 9.0 per cent in
The impact of stress in global
the corresponding period last year. The domestic liquidity deficit has
financial markets witnessed during
remained significantly above the
The slowdown in industrial growth Q3 of 2011-12 has been evident in
Reserve Bank's comfort zone of 1
is all pervasive, with both Indian financial markets as well. The
per cent of NDTL since November
investment demand (capital goods impact of the global financial
2011. Money market liquidity
growth at -1.0 per cent during April- instability on India can be witnessed
tightened significantly partly due to
November 2011 vis--vis 18.2 per in the performance of domestic
dollar sales by RBI. Credit growth
cent in the like period previous year) equity and currency markets.
slowed below RBI's indicative
and consumer demand (consumer Capital flow moderation coupled
projection due to demand as well as
durables goods growth at 5.3 per with higher trade deficit led to a
supply side factors, reflecting the
cent during April - November 2011 sharp fall in the exchange rate of
combined effect of a slowing
vis--vis 14.6 per cent in the like the Indian rupee during August -
economy and increasing risk
period previous year) being hit. This December 2011. As a result, the
aversion by banks.
indicates weakening of both corporate sector abstained from
investment and private The Reserve Bank's timely policy mobilising resources by way of
consumption which would impact actions of providing liquidity public issues during Q3 FY 2011-12.
without compromising on the anti-

POLICY UPDATES
Banking Sector Downside risks have increased since

October even as inflation remains
RBI will be constrained from
lowering policy rate in absence of
RBI Q3 Monetary policy review elevated fiscal consolidation
January 244th, 2012: Highlights There is increased global Reduction will be conditioned by
uncertainty, weak industrial growth, signs of sustainable moderation in
Key points slowdown in investment inflation
RBI cuts CRR by 50 bps to Agricultural prospects look buoyant CRR reduction reinforces guidance
5.5 per cent that future rate actions will be
Slower industrial growth will impact
towards lowering them
CRR cut effective beginning services sector growth
28th Jan 2012 Timing and magnitude of future
Economy will exhibit modest
actions contingent on various
CRR cut will infuse Rs 32,000 crore recovery in 2012-13
factors
liquidity in system
Repo Rate retained at 8.5 per cent

Guidance Policy actions to induce investment
& address supply bottlenecks critical
Reverse Repo rate remains Growth - Inflation balance of
monetary policy stance shifted to Fiscal slippage poses significant
unchanged at 7.5 per cent
growth threat to inflation management
Marginal Standing Facility stands at
Cut in CRR to address structural Union budget must begin process of
9.5 per cent
pressures on liquidity fiscal consolidation
Bank Rate retained at 6 per cent
Based on current inflation, Prudent to fully deregulate diesel
Growth Outlook premature to begin reducing policy prices to contain aggregate demand
rates & trade deficit
FY12 GDP growth revised downward
from 7.6 per cent to 7 per cent
Inflation
Food inflation has moderated more
than anticipated
Benefit offset by lower moderation

in manufactured goods inflation
Baseline projection for WPI inflation

retained at 7 per cent
Rupee depreciation, suppressed

inflation in preventing downward
revision of inflation
Inflation will remain vulnerable to

variety of upside risks

POLICY UPDATES
environment RBI in its mid quarter

review halted its monetary policy
tightening measure. RBI decided to
Keep the cash reserve ratio (CRR)

l
unchanged at 6%
Keep the policy repo rate under

l
the liquidity adjustment facility
(LAF) unchanged at 8.5%
Consequently, the reverse repo

l
rate under the LAF will remain
unchanged at 7.5% and the
marginal standing facility (MSF)
rate at 9.5%.
Fiscal Worries Global Risks The RBI's view on rates was based
on
Gross fiscal deficit for FY12 will Sovereign debt concerns in
overshoot budget estimate Eurozone pose a major downside Growth momentum is weakening
l
substantially risk to growth in the advanced economies
amidst heightened concerns that
Fiscal deficit could potentially crowd Uncertainty will adversely affect
recovery may take longer than
out credit to the private sector Indian growth through trade
expected earlier.
Fiscal slippages adding to Slowing capital flows raises
This, combined with the slowing
l
inflationary pressures & continue to concerns about current account
down of domestic demand, to
pose a risk deficit
which the monetary policy
stance is also contributing,
Liquidity Credit & Deposit Growth
suggests that risks to the growth
Liquidity conditions have remained Credit offtake has been below projection for 2011-12 made in
beyond comfort zone projected trajectory the January Review are on the
downside.
Structural deficit in the system has Nonfood credit growth scaled down
increased significantly to 16 per cent versus 18 per cent Meanwhile, RBI maintained its
l
inflation projection for March
Structural deficit could hurt credit Money supply growth projection for 2012 at 7% due to moderation in
flow to productive sectors FY12 retained at 15.5 per cent food inflation in November 2011
Structural deficit presents a strong RBI's mid quarter monetary policy and expected moderation in
case for injecting permanent review December 16, 2011 aggregate demand leading to
liquidity decline in non-food
On the backdrop, of challenging manufactured products inflation.
global & domestic economic

POLICY UPDATES
Capital Market Securities Commissions, a

federation of bodies which regulate
Depository participants
the world's securities and futures
knock SEBI door for
Government allows market. enlarged role
foreign individuals to Foreign fund inflows, a major driver Depository participants have made
of Indian stocks, dried up with net a representation to SEBI to
invest in stock markets outflows of about USD 380 million, reconsider some of the
The Central Government has a far cry from record inflows of responsibilities entrusted to
decided to allow qualified foreign more than USD 29 billion in 2010 depositories and depository
investors to directly invest in the that had powered a 17% rise in the participants (DP).
Indian equity market from January benchmark index, following an 81%
surge in 2009. The existing regulation on
15 in order to widen the class of
depositories and DPs mandates
investors, attract more foreign
Collective investment them to deal only with securities
funds, and reduce market volatility.
pay-in and pay-out. However, with
Previously, foreign nationals were plans may soon come the introduction of the new
limited to investing in India's equity
market through indirect routes such
under 'principal regulator' Qualified Foreign Investor (QFI)
guidelines, the roles and
as mutual funds, or through Owing to new and innovative responsibilities of the depository
institutional vehicles. QFIs includes methods of raising funds from and DP have been extended beyond
individuals, groups or associations investors, there has been a the original brief. DPs are expected
of a foreign country compliant with regulatory gap or overlap regarding to do the know your customer (KYC)
the Financial Action Task Force, a types of instruments. Policy makers due diligence of a QFI; receive and
global body to boost national and have proposed a 'principal remit foreign exchange; place buy
international policies to counter regulator' to oversee collective and sell orders of securities on their
terror funding and money investment schemes. The proposal behalf; ensure pay-in/pay-out of
laundering. These countries will also intends to regulate those entities, funds/securities on the designated
have to be signatories of the which use grey areas in the day and also address all taxation
International Organisation of regulatory system to raise funds. related procedures. In addition, they
are also expected to ensure that the
QFI uses only one demat account
and one forex bank account; the
shares held are free from all
encumbrances and that the QFI
does not issue P Notes to others and
the like. For monitoring and
administering all this, DPs and
depositories cannot charge
anything.

POLICY UPDATES
SEBI weighing speed

limits on high-frequency
trading of listed Indian
securities
Indian regulators may consult
market participants to discuss
whether speed limits be imposed on
high-frequency trading of listed
Indian securities. SEBI is concerned
that while the use of algorithms in
high-frequency trading enables a
more diverse range of investors to
participate in the market, higher subscribed, the foreign company proposal was discussed at a recent
speeds are being pursued without a may end up holding as much as 51 meeting of the Financial Stability
clear understanding of whether the per cent or more - or a clear and Development Council (FSDC) - a
resulting increased trading velocity majority stake - in a domestic forum set up to ensure co-
could be problematic. carrier. On the other hand, the ordination of policies between
government has capped the foreign regulators such as the RBI, SEBI and
FDI in aviation direct investment (limit) to 49 per the Finance Ministry. A final
cent. Similarly, if a foreign company decision is yet to be taken, but the
The Civil Aviation Minister will move
were to pick 49 per cent, the open intent is to avoid defaults by Indian
a cabinet note on 49% FDI by
offer regulation would still get companies,
foreign carriers. However, until SEBI
triggered, according to the existing
gives a carve out for the aviation
sector, this 49% proposal will be
takeover guidelines. So, on the one SEBI cuts share buyback
hand the government is capping the
against the current Takeover Code time to 34-44 days
FDI in aviation at 49 per cent, while,
because of the trigger point.
on the other, the takeover code SEBI has reduced the timeline for
The Substantial Acquisition of forces the acquirer to make an open completion of buy back of shares by
Shares and Takeover Regulations, offer if they exceed 25 per cent. companies to 34-44 days. Earlier,
2011, specify that any entity the buyback process could take
acquiring 25 per cent or more in a Companies may have to anywhere between 63 and 114
company would have to mandatorily make provision for FCCB days. These changes form a part of
make an open offer of 26 per cent. amendments made by the regulator
That means, if a foreign firm were to payouts in the SEBI (Buy back of Securities)
pick 25 per cent or above in a Regulations, 1998. They have come
The government may ask companies
domestic carrier, it would have to into effect from January 3,2012.
issuing foreign currency convertible
make an open offer of another 26
bonds (FCCBs) to set aside funds to
per cent. If the issue is fully
redeem the borrowings. The

POLICY UPDATES
Pension fund should have the board, or through any other

agency, for utilisation of the SEBI
tax incentives, lock-in till Investor Protection and Education
retirement Fund for the purposes stated in the
SEBI regulations, 2009.
SEBI Chairman has called upon
mutual funds to actively get into the FMC plans minimum
pension funds business. Such
products would fill a serious gap deposit for trading
that is there in the range of retail For the first time, the Forward
financial products that are available. Markets Commission, regulator for
the commodity futures market, is
SEBI to make it easier to considering levy of an exposure-free
tap MF, FI funds minimum deposit criterion for
members. The capital market
SEBI plans to allow mutual funds exchanges have such a requirement.
and insurance firms to subscribe to This is one of several measures the
preferential issues of companies FMC has planned to strengthen the Chairman, along with senior officials
even if they have traded the shares risk management system, to attract from SEBI, IRDA, PFRDA and the
of the issuing corporates in the past wider participation on the exchange Ministry of Finance as members.
six months, to boost liquidity in the platform. The effort is to ensure that prompt
markets and make it easier for firms
decisions could be taken for
to raise funds. Such transactions are Life insurers' public issues effective crisis management.
currently banned, blocking a key
source of funds for companies. But will need IRDA approval Though every segment of the
financial sector has crisis prevention
this restriction will continue to be in Life insurance companies planning systems in place, an integrated
place for promoters. to tap the equity market through system was needed to avoid sudden
IPOs would have to secure a shocks which can quickly spread
SEBI constitutes an "written" approval from IRDA, across market segments and
Advisory Committee for before applying to SEBI. institutions.
Investor Protection and
Crisis Management group SEBI wants oversight
Education Fund
for financial markets on mechanism quickly
SEBI constituted an Advisory cards
Committee for SEBI Investor SEBI has called for the creation of an
Protection and Education Fund. The With high volatility in the equity and independent regulator to oversee
Committee which consists of eight- currency markets, the Government auditors, a move that is being
members will be headed by ICICI aims to set up an empowered 'Crisis opposed by the Institute of
Bank Chairman Mr. K.V. Kamath. The Management Group' for the Chartered Accountants of India
committee will recommend investor financial markets. It is proposed to (ICAI), the industry body that self-
education and protection activities nominate a Deputy Governor of the regulates the auditing profession at
that may be undertaken directly by Reserve Bank of India as the present. SEBI feels that lack of a

POLICY UPDATES
strong regulatory framework for seller is based. Rough estimates say intermediaries of India and Pakistan
auditors compromises the efficient the cost may come down by half in have finalized.
functioning of stock markets and the proposed system. The existing
there was a conflict of interest in practice is to levy the duty on both SEBI releases norms for
the multiple roles being performed the buyer and the seller and most outsourcing by brokers
by ICAI. states agree to Ministry's suggestion
to levy stamp duty only on the SEBI released guidelines on
SEBI may relax seller. outsourcing by intermediaries like
advertisement rules for brokers and depository participants
No service tax on late that prohibit sub-contracting of core
Mutual Funds business activities. The guidelines
payment charges by stock
SEBI may relax the recently also direct them to put in place a
investors comprehensive policy on the
introduced advertisement rules
which require AMCs to display the The Ministry of Finance has clarified outsourcing of activities.
performance data of all the other to SEBI that stock market investors
schemes managed by the fund would not have to pay any service
SEBI sets up international
manager of that particular scheme tax on any late payment charges advisory board
in advertisements. Fund houses paid by them to their brokers,
have complained that it is difficult to provided such fines are shown SEBI has set up an International
advertise the performance of all separately in the account statement. Advisory Board (IAB) that would
schemes managed by one fund comprise of seven members,
manager and it increases the space Compliance officers must including SEBI Chairman Mr. U. K.
and cost. Sinha. The IAB would have a three-
pass test year term and would help SEBI
Move to levy stamp duty SEBI will soon make it mandatory better understand the global market
for compliance officers of all market trends and emerging developments
only on seller and challenges.
participants to take a certification
As part of a revamp of the proposed programme that will be conducted
Indian Stamp (Amendment Bill) Act, by the National Institute of
SEBI proposes to restrict
the Ministry of Finance has Securities Markets (NISM). slabs for anchor investors
proposed a uniform duty on
securities transactions, to be SEBI body to set up SEBI proposes to restrict the slabs
collected by stock exchanges and for anchor investors (AI) to two as
securities training per the provisions of current
passed on to the states where the
institute in Pakistan regulations. The regulator also plans
to introduce a maximum number of
SEBI-promoted National Institute of AIs in each slab and also for an
Securities Market (NISM) has agreed anchor tranche upto R10 crore. By
to offer its help to set up a securities this, there will be a maximum two
training institute in Pakistan. This is AIs for an allotment tranche upto
part of the capacity building R10 crore and a minimum two and a
cooperation measures that the maximum of 15 AIs for an allotment
financial market regulators and tranche above R10 crore and upto

POLICY UPDATES
R250 crore, subject to minimum promoter to either issue fresh SEBI planning more
allotment of R5 crore per AI. There equity or dilute its holding by up to
will be a minimum of five and 10% of the total equity.
centres to address
maximum of 25 AIs for allotment investors' woes
tranche of more than R250 crore Investors not to pay for
subject to minimum allotment of R5 SEBI is planning to set up more
maintaining KYC data investor grievance and arbitration
crore per AI.
SEBI is working on simplifying the centres to address investors' woes.
SEBI mulls e-IPO for Know Your Client (KYC) process for
easy investing. There will be no
SEBI turns focus on
paperless bidding to fast
burden of charges on investors for insider trading
track process maintaining their data with the KYC
Registration Agency (KRA). SEBI stated that it needs more
SEBI is considering a proposal to investigative powers to detect
allow the companies to sell shares insider trading and that it was
through an all-electronic Initial
SEBI reviews exit policy
unable to access electronic
Public Offer (e-IPO), wherein for bourses, seeks ways to surveillance and the quality of
investors would be able to bid for deal with their assets evidence was poor.
shares electronically and without
the need for signing any papers SEBI is in the process of reviewing RBI booster for F&O
physically. The proposed move the exit policy of stock exchanges.
would help in fast-tracking the IPO There are 25 stock exchanges
settlement reform
process and lower the costs, besides registered with SEBI, but the In its financial stability report, RBI
allowing the investors to apply for majority of them are not has identified fall in equity cash
shares online, without the need for operational. In case of some stock segment volumes and rise in
signature on bulky physical exchanges, SEBI has refused derivative trades as stress points.
documents. SEBI is currently recognition due to regulatory issues. RBI's concern over the falling cash
awaiting a formal clearance from These stock exchanges have volumes in equity markets has
the Ministry of Corporate Affairs valuable real estate assets, whose strengthened the demand for a
(MCA) for the e-IPO process, prices have appreciated like change in the derivatives settlement
although the Ministry has already anything. These assets are owned system. Market players feel that the
given a go-ahead informally. by the brokers, but in the absence existing derivatives settlement on
of an exit policy, the money cannot NSE, which has around 90 per cent
SEBI tweaks share be distributed. market share, is based on the cash
allotment norms mechanism and should be changed
to a delivery-based system.
SEBI made it easy for the
government to quickly tap major SEBI releases norms for
institutional investors to sell up to
10% of its stake in listed public KYC registration agency
sector companies. SEBI introduced a SEBI released guidelines to
concept of institutional placement streamline know-your-customer
programme (IPP) that will allow a
(KYC) norms through a single-point

POLICY UPDATES
registration agency namely, KYC SEBI changes norms for

Registration Agency (KRA). This long
awaited move is expected to bring
paying incentives
in much needed transparency and SEBI said that in public issue of debt
ease with which individuals can securities, intermediaries should not
participate in the financial markets. pass on part of their brokerage or
The new rules, effective January 1, commission to the final investor(s)
2012, apply to intermediaries such as incentive to subscribe to such
as stock brokers, depository public issue of debt.
participants, mutual funds, portfolio
managers, venture capital funds and SEBI launches toll-free
collective investment schemes.
helpline for investors investment advisors that will
Henceforth, intermediaries will
upload the KYC information on the SEBI has launched a toll free require them to be registered with a
system of KRA and send the KYC helpline service number for self-regulatory organisation (SRO)
documents, of the clients to KRA investors across the country on before undertaking such a role. The
within 10 working days from the December 30, 2011. The service will proposed framework intends to
date of execution of documents by be in 14 languages and available on regulate investment advisory
the applicants. all working days during Monday to services in various forms including
Friday from 9.30am to 5.30 pm. It independent financial advisors,
Companies not holding would provide guidance to investors banks, distributors and fund
on the status of companies- managers.
AGMs to face SEBI probe
whether unlisted, sick, delisted or
SEBI would investigate the details of liquidated, on how to lodge a SEBI is reviewing the
those listed companies that do not complaint, and compliant status entire IPO process
conduct Annual General Meetings among others.
and send annual reports regularly to SEBI has set up an expert group to
their shareholders. SEBI no to schemes with review the entire process for initial
public offering of shares, including
CBSE to teach students existing themes shortening the timeline for the
SEBI is not encouraging mutual fund entire process.
stock market trade
companies to float new schemes -
Investment education will be a part unless it has a new theme. It has SEBI allows 2 and 5 year
of CBSE curriculum in the near also asked companies to merge the IRFS in G-secs
future. The study material will existing schemes, if the themes are
primarily focus on educating same. In order to help investors guard
children on stock markets and giving against interest rate fluctuations,
them an insight into investment of SEBI proposes new norms SEBI introduced two-year and five-
surplus money in the market. year exchange-traded IRFs (Interest
for advisors Rate Futures) in government bonds.
SEBI has proposed new rules for

POLICY UPDATES
policy and get it approved by the in the last week of December 2011.
Insurance Sector IRDA by the end of March. During examination of the products,
Moreover, IRDA has urged the certain insurers have sought
insurance firms to check their ability clarifications and in that context,
IRDA introduces uniform to fulfill financial liabilities after the IRDA issues clarification on
asset-liability taking into account factors such as clause (17) of the Circular dated
management regulations 30% decline in equity values and November 8, 2011 as follows:
one percentage point dip in yields
1. Assured benefit referred to at
The Insurance Regulatory and on fixed investments.
clause (2) shall mean all of
Development Authority (IRDA) has
IRDA has issued these norms to get the following:
unveiled uniform asset-liability
uniformity in the ALM guildelines
management regulations for market (a) The insurer shall guarantee
being followed by both life and non-
players with the aim to ensure their either a non-zero rate of
life insurance companies.The ALM
solvency. The regulator has also return on premiums paid
policy needs to ensure the insurers
directed the companies to take up from the date of payment to
to understand the risks they are
stress tests to find out their ability the date of vesting or an
exposed to and also develop ALM
to fulfill financial obligations during absolute amount (which
policies for managing them
crisis. shall result in a non-zero
effectively. The ALM can be used to
return). In both cases, this
The asset-liability management determine the interest rate risk
shall be disclosed at the
guidelines are scheduled to become faced by the insurers.
time of purchase of the
effective from April 1, 2012. It
policy.
means that it is compulsory for the IRDA Clarification on the
insurance firms to prepare an ALM (b) Death benefit: In the event
Guidelines for Pension
of the death of a
Products: policyholder during the
The IRDA had issued guidelines for term of the contract, the
pension products vide its circular successors to the
dated November 8, 2011 and policyholder shall be
insurance companies were required entitled to receive a sum
to withdraw all insurance products equal to the premiums paid
which do not conform to the at the guaranteed rate of
guidelines with effect from January return as specified in (a)
1, 2012. above.
In accordance with this circular, (c) Surrender Value: If the

insurance companies had filed 22 insurance product is on a
revised products as on date out of ULIP platform the surrender
which 21 products were filed only in value shall be the higher of
the month of December 2011 and of fund value and premium
which the largest number were filed accumulation at a

POLICY UPDATES
guaranteed rate on the date The Insurance Regulatory also indicated that the above-
of surrender less the Development of India (IRDA) has mentioned guidelines will come into
discontinuance charges as issued guidelines pertaining to immediate effect.
per the Guidelines on IRDA corporate agents. Non life insurers
(Treatment of Discontinued have been directed to lay down Government health
Linked Insurance Policies) minimum business requirement for
schemes
Regulations, 2010. In all all corporate agents engaged with
non-linked products, the the non life insurance companies for The government has decided to
surrender value shall be in soliciting the insurance business. bring auto and taxi drivers under
conformity with the the Rashtriya Swasthya Bima Yojana
The insurance authority had earlier
provisions of the Insurance (RSBY) scheme with the aim to bring
issued guidelines for individual
Act. everyone in the unorganized sector
agents for persistency of life
under the flagship of RSBY program.
2. It is further clarified that the insurance policies and later on
The health cover scheme was
provisions of the Circular dated extended the stipulations to nonlife
earlier extended to domestic, beedi
November 8, 2011 do not apply insurance companies as well. In the
workers and porters.
to Group Gratuity and Group guidelines, non-life insurers were
Leave Encashment products. directed to lay down minimum
Portable health cover roll
business requirement for individual
IRDA Issues guidelines agents. out soon
pertaining to corporate Now, the IRDA is extending the said India could roll out cashless and
agents provision minimum business portable Universal Health Coverage
requirement to all corporate agents (UHC) in one district of each state
Non-life insurer directed to lay and has directed the nonlife insurers during the first year of the 12th plan
down minimum business to monitor the performance of as a pilot project before introducing
requirement all corporate agents corporate agents in this regard as it nationwide by 2020.
engaged with the non life insurance often it is required. The authority
companies

POLICY UPDATES
Finance's instructions, has been

asked by IRDA to continue doing so.
IRDA drafting norms to

make health insurance
more customer-friendly
IRDA is looking at standardizing
policy wordings, the coverage and
exclusions under a health insurance
policy. These guidelines will also
include claim settlement procedure.
IRDA warns General

Insurance Companies on
IRDA: Only registered exit age in the policy, which ensures
that no one is denied health
unhealthy marketing
bodies can act as agents insurance merely on grounds of age. Disapproving of huge discounts
training institutes offered by GIC's in the face of
Insurance FDI increasing competition, IRDA said
Only those entities that are
that such unhealthy marketing
registered under the Companies Act A parliamentary committee has
practices could lead to financial
and the Societies Registration Act rejected the government's proposal
troubles
and have more than three years of to raise the foreign investment cap
experience will be eligible for in insurance to 49% from 26%. The
accreditation as institutes for move comes just a day after the
training insurance agents. government put on hold its decision
to allow FDI in retail.
No exit age for Health
Insurance: IRDA IRDA over Obligatory
Commission
In its most recent initiative, Irda,
while approving health insurance GIC, RE which had stopped paying
products, is advising all general commissions to general insurers on
insurers to ensure that there is no obligatory business on Ministry of

FUTURE EVENTS
FICCI and the City of London will organise a roundtable on

'Role of insurance companies and pension funds as institutional investors'
in February 2012 in Mumbai
The roundtable follows the launch companies have over the years Some of the key questions to be
of the City of London special increased their involvement in both discussed are:
interest paper: Insurance companies equities and corporate bonds. They
Is further liberalisation required
l
and pension funds as institutional currently hold the equivalent of 11
for investment limits in equity
investors: global investment per cent of free-float market
and corporate bonds for
patterns (November 2011) in capitalisation. Compared to the US
insurance & pension funds?
London. Pension funds and and the UK, however, their
insurance companies have shaped participation is still limited. Pension Why insurance companies are
l
financial systems in the developed funds barely invest in equities and not allowed to invest in lower
world. In China and India, their not in corporate bonds at all. grade infrastructure debt
involvement in capital markets so instruments- if they are able to
The objective of the roundtable is to
far has been limited. The City of quantify the risks effectively?
deliberate on the suggestions and
London paper explores the role they
recommendations made in the City Should insurance &pensions
l
could play in the deepening of
of London paper - following the funds be allowed to invest in
equity and corporate bond markets
discussion we will publish a policy derivatives to effectively hedge
by making comparisons with and
note, that will be circulated to all market risks?
drawing lessons from developed
the regulators and Indian and UK
markets. In India, insurance Should insurance companies
l
stakeholders.
also be allowed to invest in
mutual funds?
The roundtable will be attended by

the Policy Chairman of City of
London, Mr. Stuart Fraser and senior
representatives from IRDA, PFRDA,
SEBI, RBI, Life Insurance Council,
General Insurance Council, AMFI
and the Indian insurance sector.

ARTICLES
Indian Financial Services Congress on

Reinventing For Sustainability
Tuesday, 7th February 2012, 9.30 AM onwards At Hotel Taj lands End, Mumbai
IDC is organizing Indian Financial The conference will have senior Capitalizing on the rising mass
l
Services Congress on "Reinventing business leaders sharing insights on affluent
For Sustainability" with FICCI as the the following:
Risk Implications from New
l
knowledge partner on 7th February
India's role in the global financial
l Technologies
2012 at Hotel Taj Lands End,
services.
Mumbai. The Indian Financial Services
Disruptive Trends in Banking
l Congress is meant for the
In the era of uncertainty where
CEOs/MDs/Country
some well-capitalized incumbents Technology: A Crucial Enabler of
l
Heads/COOs/CFOs/CIOs and Head
are taking this opportunity to growth.
of Business. This forum offers a
increase their footprint and
Key Topics to be discussed: distinctive opportunity for genuine
progress into the league of super-
peer-to-peer debate along with
regional institutions. Future of Indian Banking: How to
l
eminent Industry exponents.
stimulate growth in uncertainty?
The IFSC 2012 will delve deep on
Date: Tuesday,
challenges and issues for the players Globalization: Steep learning
l
7th February 2012
to innovate and reinvent themselves curve
to ensure sustainable, profitable Venue: Hotel Taj Lands End,
Influencing the mass influencers:
l
growth. Mumbai
Gen Y in Social Media
Time: 9:30 A.M onwards, followed
Next Generation Technology:
l
by networking lunch.
Insurance

ARTICLES
Advertisement for the Digest
FICCI's Banking & Finance Digest

ARTICLES
Notes

Issue No. 10 January 2012 DIGEST
3 years of Currency
Derivatives Segment
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Issue No.

10 January 2012 DIGEST

1. Mr Manoj Choudhary, Head Business Development .......................................................................01

2. Naveen Mathur, Associate Director-Commodities and Currencies .................................................05

3. Dr Sayee Srinivasan, Head of Product Strategy................................................................................09

4. Rajat Prasad, Head - Treasury and Forex ..........................................................................................13

5. Mr Shrikant Subbarayan, Director ...................................................................................................17

6. Dr AlokPandey, Director-Advanced Studies .....................................................................................22

7. Mr K G Mantri, Sr. VP - Corporate Affairs ........................................................................................28

8. Dr V Shunmugam, Chief Economist .................................................................................................32

9. Mr Jagannadham Thunuguntla, Strategist & Head of Research .....................................................37

INDIAN ECONOMY-AN UPDATE ............................................................................................................43

POLICY UPDATES ...................................................................................................................................46

lCapital Markets sector

lRoundtable on 'Role of insurance companies and pension funds as institutional investors'

lIndian Financial Services Congress on 'Reinventing For Sustainability'

Dr. Rajiv Kumar

PREVIEW ?United Stock Exchange on Markets in true sense are 24 hrs

FICCI's Banking & Finance Digest 01

02 FICCI's Banking & Finance Digest

was a new segment entering the teams. Regulator permitted some of

FICCI's Banking & Finance Digest 03

04 FICCI's Banking & Finance Digest

G lobally, currency trading

FICCI's Banking & Finance Digest 05

In case of forward contracts and the

06 FICCI's Banking & Finance Digest

BSE, the major Indian equity

In India, the introduction of new

FICCI's Banking & Finance Digest 07

08 FICCI's Banking & Finance Digest

Aiming for Quantum Growth

Introduction collaborative process between RBI spectrum of market participants,

FICCI's Banking & Finance Digest 09

Unfortunately, the cash settlement

10 FICCI's Banking & Finance Digest

Moving away from OTC The trend now is to move as much

FICCI's Banking & Finance Digest 11

12 FICCI's Banking & Finance Digest

Currency Futures and

C urrency Futures and Derivatives

FICCI's Banking & Finance Digest 13

Currency futures market has Currency Futures and derivative

14 FICCI's Banking & Finance Digest

OTC market is executed primarily Currency Exchanges - An Traders have an incentive to do

Exchanges have put in place a

FICCI's Banking & Finance Digest 15

Exchange traded futures are cash

16 FICCI's Banking & Finance Digest

exchanges. In RBI's words the main

enhance the flexibility for the in USDINR pair

management, wider participation, 1,000.00

Initially trading was limited only to 100.00

pairs viz. EURINR, GBPINR and

JPYINR being traded. Quarter

FICCI's Banking & Finance Digest 17

Currency Futures - volume of above USD 1163 Billion in

Objective Performance Scope for Improvement

18 FICCI's Banking & Finance Digest

Even though, the margin based

FICCI's Banking & Finance Digest 19

The regulators, exchanges, brokers

20 FICCI's Banking & Finance Digest