SEBI, SEs counting on currency futures

[N.Sukumar]

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

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

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

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

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

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

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

N.Sukumar
Research Analyst