Bonds, Currencies & Commodities
Currency derivatives volumes may outstrip equity markets soon

Average daily trading volumes in the Indian currency market have shown a significant jump; they may eventually outgrow volumes in equity derivatives

A dramatic shift is currently underway in the financial market scene in India. The currency futures segment, which was only introduced two years ago, is rapidly catching up with the stock futures segment in Indian stock exchanges.

This is being played out even as the two fiercest rivals in this segment, the National Stock Exchange (NSE) and the MCX-SX, have been going hammer and tongs at each other in a bid to corner a larger share of the currency derivatives pie.

After the Reserve Bank of India (RBI) permitted trading in the currency derivatives segment through the exchanges in India, the average daily trading volumes in the Indian currency market (only exchange traded currency derivatives and excluding the OTC market operated only by the banks in India) have been constantly growing.

Over the past three months alone, average daily volumes in currency futures have surged 37% on both MCX-SX and NSE. Comparatively, the equity derivatives segment has been stagnant for the past few months. Volumes on the NSE have risen marginally (5.4%) since January this year. In fact, the NSE has witnessed a slight decline in average daily turnover from Rs78,437 crore in the month of January to Rs74,674 crore in the month of March. Considering both cash and derivatives segment, the average daily turnover touched Rs88,304 crore in March. Already, the daily traded volumes on the currency derivatives space have touched Rs35,000 crore.

Pramit Brahmbhatt, CEO, Alpari India, a provider of online forex services, said, “The way (the) currency market is growing, it won’t be surprising if it overtakes the equity market in India by 2012. In the days to come, trading in currencies will dominate commodities and equities in India also, as is the case in major developed economies abroad. It was just about a year-and-a-half when trading in currency futures of Dollar-INR was started and on the last trading day of February 2010, the daily turnover of exchange traded currency derivatives was more than Rs36,000 crore, and even exceeded the daily turnover of the commodity market.”

As far as the exchange-traded currency derivatives market is concerned, there was a 30% jump in trading in less than a month’s time after introduction of three new currency futures. The launch of contracts in the new currency pairs of euro-rupee, pound-rupee and yen-rupee in February have contributed to the growth of this segment.

With the RBI announcing its intention to introduce plain vanilla options in the dollar-rupee pair, currency derivatives will get a further boost as it becomes more popular as an investment alternative.

Interestingly, the MCX-SX has recently overtaken NSE as the largest player in this prestigious business segment, despite being allowed to enter the field much later. MCX-SX's market share has averaged 56% since February, outshining its much larger and more resourceful rival by a sound margin. For the last three months, while NSE has managed average daily volumes of 33,03,908, the MCX-SX has shone brightly with volumes touching 38,58,460 in the same period. Prior to February, both exchanges were almost at par with each other. Obviously, MCX-SX’s success has not gone down too well with the NSE, which has a monopoly position in the equity derivatives segment. Not one to take things lying down, the NSE waived the transaction fee on currency derivatives. This waiver meant that MCX-SX could also not charge the fee from its members. Incensed, the MCX-SX filed a complaint with the Competition Commission of India (CCI), which ordered an investigation into the alleged misuse of dominant position by NSE.

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COMMENTS

Shatilal Hajeri

7 years ago

Any thing new, people are always fascinated. I am afraid many traders willburn thier fingures in such deals.

There is a need to educate the investors about the risks involved in such trades.

ankita

7 years ago

very good article

Slip sliding away

As we predicted yesterday, markets were weighed down by global cues. Expect a continuing short-term dip towards a Sensex level of 16,000

The market plunged today after taking a cue from the decline in global bourses. The Sensex ended at 17,380, lower by 310 points (1.7%) and the Nifty ended at 5,215, lower by 93 points (1.7%). There was intense selling pressure on the bourses as the downward rating on Greece and Portugal dragged down indices.

Asian stocks fell on renewed worries over Greece’s debt problems; US stocks were also hit on Tuesday. Key benchmark indices in Hong Kong, China, Japan, South Korea, Singapore, Taiwan and Indonesia were down by 0.26% to 2.57%. US stocks tumbled on Tuesday as downgrades of Greece and Portugal fuelled fear about eurozone economic stability, and a grilling of Goldman Sachs on Capitol Hill heightened the possibility of financial reforms.

The Dow dropped 213 points (1.9%) to 10,992. The S&P 500 slid 28 points (2.3%) to 1,183. The Nasdaq lost 51 points (2%) to 2,471. S&P slashed Greek bonds to junk status and also downgraded Portugal. The downgrade put Greece on par with Romania and below Kazakhstan, Hungary and Iceland. S&P has reduced its rating by two notches to ‘A-minus’ for Portugal citing the weak condition of its finances and its uncompetitive economy. The Federal Reserve is expected to retain the current monetary policy. While there is acceptance on the economic recovery, there will be no revision on the interest rate, to allow the US to grow faster. 

Closer home, the UPA government has sailed through the cut motion demanded by Opposition parties against an unpopular hike in fuel and fertiliser prices. The government was backed by 289 MPs in the 545-strong Lok Sabha, while the Opposition managed 201 votes. A more-than-expected income generated from the 3G auction has buoyed investors’ expectation on the curtailing of government borrowing. The Centre is scheduled to borrow Rs2.87 trillion ($64.3 billion) during the first half of the fiscal year out of a total Rs4.57 trillion rupees for the full year.

Foreign institutional investors were net sellers of Rs164 crore. Domestic intuitional investors bought stocks worth Rs1 crore. The rupee was down on the declining equity markets and the gain in the dollar. 

Sintex Industries (down 1.5%) has touched its 52-week high on the news of a stock-split plan. Maruti Suzuki India (down 1%) is in discussion with Volkswagen AG to supply certain models. UltraTech Cement (down 1.8%) is reportedly set to acquire a 51% stake in Dubai-based Star Cement Co for an undisclosed sum. Patni Computer Systems (down 0.4%) has received an order from US health insurance provider Universal American Corp. Patni will also acquire CHCS Services Inc, a back-office unit of Universal American in Pensacola, Florida, with 200 employees. GVK Power & Infrastructure’s (down 3%) wholly-owned subsidiary GVK Coal (Tokisud) Company has signed the financing documents for the Tokisud North Sub-Block coalmine in South Karanpura coalfield situated in district Hazaribagh, Jharkhand. NTPC (down 0.1%) has signed an agreement with the Nuclear Power Corporation of India to set up a joint venture company for building nuclear power projects in India. The new entity will be a subsidiary of Nuclear Power Corporation, which will hold a 51% stake, with NTPC holding the remainder. Container Corporation of India posted a growth of 13% in sales in the March quarter over the year-ago period. However, its operating profit declined 3% for the same period. 

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Govt to pay commission to brokers for selling PSU IPOs

The government will pay a broker commission of 0.35% for selling shares to retail investors and 0.15% for roping in high net-worth individuals

The government today said that it will pay a commission to brokers selling public offers of State-run firms, in an attempt to woo retail investors for its ambitious disinvestment programme, reports PTI.

The government, which till now paid little or no commission to brokers, has fixed a commission of 0.35% for selling shares to retail investors and 0.15% for roping in high net-worth individuals.

“After consulting with brokers we have done the changes and the commission for brokers have been fixed at 0.35% for retail investors and 0.15% for HNIs,” disinvestment secretary Sumit Bose told reporters.

The changes have been done to attract more retail demand for the public offers, he said.

Earlier, the commission paid was included in the fees of the book-running lead managers (BRLMs). “Now the government will reimburse this commission to the BRLMs for the brokers,” he added.

The new provisions will be applicable to all the forthcoming public issues starting with State-run power producer Satluj Jal Vidyut Nigam. SJVNL’s public issue opens tomorrow.

“The new norm will be applicable to all subsequent issues, starting with SJVNL,” Mr Bose said.

The government is selling 10% of its equity in SJVNL through an initial public offering (IPO). The price band has been fixed at Rs23-Rs26 per share.

The government has set a target of Rs40,000 crore through disinvestment in the current fiscal.
 

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COMMENTS

Roopsingh

7 years ago

If the govt is really honest-it should not have paid any commission to brokers-bcos this is against ETHICS of our so called Investors ultimate protection agenda-
but the elephant has 2 types of teeth-
'Khane ke alag,dikhane ke alag''

Roopsingh Solanki

7 years ago

MERA BHARAT MAHAN-because our great Govt has 2 standards for it self and common man-
1-it abolished commision on Mutual funds for the benifit of investors-but it can pay brokerage to brokers who sells IPO's of PSU's-this just shows the gredy man's double standards.
2-its PET SEBI put a ban on ULIPS of private co's but did not touch LIC-(apne paraye ka kuch to fark hona chahiye).

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