India unveils final guidelines for foreign exchange futures

An Indian panel on Thursday recommended the introduction of exchange-traded currency futures as a way of developing the country's foreign exchange markets, although foreigners would not be able to trade the derivatives.
The panel of officials from the central bank and the stock market regulator said trade in dollar/rupee futures should be permitted during Indian market hours, with a minimum contract size of $1,000. Contracts should be quoted in rupees and the maximum maturity of a contract should be 12 months, the panel said in a report posted on the stock market regulator's Web site www.sebi.gov.in.
Such a market was seen as essential to upgrading Indian foreign exchange markets to international standards. "While some flexibility in foreign exchange markets and exchange rate determination is desirable, excessive volatility can have adverse impact on price discovery, export performance, sustainability of current account balance and balance sheets," the panel said.
Foreign institutional investors and non-resident Indians would not be permitted to participate in the futures market, the panel said. The report said a recognised stock exchange with nation-wide terminals or a new exchange recognised by the regulator could get approval to offer trade in currency futures.
Exchanges should have a balance sheet networth of 1 billion rupees ($23 million) and the segment should have at least 50 members to start trading, the panel recommended, and currency futures must be separated from other trading platforms.
The gross open position limits of the clients of an exchange across all contracts should not exceed 6 percent of the total open interest or $5 million, whichever is higher, while the gross open position of the trading member across all contracts should not exceed 15 percent of the total open interest or $25 million.
An extreme-loss margin of 1 percent of the mark-to-market value of the gross open positions should be deducted from the liquid assets of the clearing member on a real-time basis, the panel recommended. A trading member would be subject to a balance sheet networth requirement of 10 million rupees while the clearing member must have a networth of 100 million rupees, it said.