RBI-SEBI panel finalises norms for currency futures

06 August 2008

Mumbai: The Reserve Bank of India (RBI) has announced guidelines for the introduction of currency futures in stock exchanges, a move aimed at managing volatility in the value of the rupee.

The guidelines were finalised by a joint panel of the RBI and market regulator Securities and Exchange Board of India (SEBI).

''In the context of liberalisation of the capital accounts, as also continued development of the financial markets, it is felt that wider hedging opportunities could enhance the flexibility for the residents to manage their currency risk dynamically. International experiences have also established that the exchange traded currency futures contracts facilitate efficient price discovery, enable better counterparty credit risk management, wider participation, trading of standardised product, reduce transaction costs, etc,'' the panel said in its report.

As per the guidelines, only persons who are residents in India are permitted to trade in futures.

Contracts in US dollar-rupee of size of a minimum $1,000 only would be allowed. All the contracts, however, would be quoted in Indian rupee.

The contracting parties would be allowed to purchase or sell currency futures for hedging their exposure to foreign exchange rate risk. The maturity of contract will not exceed 12 months.