RBI and SEBI allow trading in cross-currency futures and options
The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have allowed trading in cross-currency futures and options. Cross-currency contracts were launched by the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) for trading on February 27, 2018. The exchanges have introduced the Indian currency options in the following pairs: EUR-INR, GBP-INR and JPY-INR.
Cross-currency contract specifications
| Symbol | EUR-USD | GBP-USD | USD-JPY |
| Unit of trading (futures) | 1 denotes (EUR1,000) | 1 denotes (GBP1,000) | 1 denotes (USD1,000) |
| Trading hours | 9.00am to 7.30pm (Monday to Friday) | ||
| Margin (futures) | 3 to 4% | ||
| Margin (options) | Buy – Premium and Sell – Same as Futures | ||
| Tick Size (futures) | 0.0001 | 0.01 | |
| Tick Size (options) | 0.005 | 0.50 | |
| Price quotation | USD per EUR | USD per GBP | JPY per USD |
| Settlement | Daily: T+1 Final: T+2 | ||
| Position limit | 6% of the OI or 10 million whichever is higher | ||
Contracts |
Upto 12 months (futures) Up to 3 months and three quarterly contracts (options) |
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| Settlement mechanism | Cash settled in INR | ||
| Daily settlement price | Last half-hour weighted average price or theoretical price | ||
| Final settlement price | RBI ref rate | ||
| Last trading day | 2 days prior to the last business day of the expiry month at 12.30pm | ||
| Final settlement day | Last working day of the month, excluding Saturday | ||
| Symbol | EUR-USD | GBP-USD | USD-JPY |
| CMP on 28/2/2018 – A | 1.2 | 1.4 | 107 |
| Price per | EUR | GBP | USD |
| Price quotation | Dollar | Dollar | Yen |
| Contract size – B | EUR1,000 | GBP1,000 | USD1,000 |
| Tick size – C | USD0.0001 | USD0.0001 | JPY0.01 |
| Applicable conversion rate | USD-INR | USD-INR | JPY-INR |
| RBI exchange rate on 28/2/2018 – D (Refer RBI site) | 65 | 65 | 0.6 |
| Contract value A*B*D (Rs) | 78,000 | 91,000 | 64,200 |
| Margin % | 4% | 4% | 4% |
| Margin amount (Rs) | 3,120 | 3,640 | 2,568 |
| One tick P/L in rupee terms - B* C * D | 6.5 | 6.5 | 6 |
Why cross-currency derivatives?
- Trading time for the currency segment extended till 7.30pm
- Average daily volume of $15 billion in cross-currency derivatives across the globe
- No separate documents needed to start trading in cross-currency derivatives
- Options introduced for trading in all currency pairs
- 50% of the foreign exchange volume is done in EUR/USD, GBP/USD and USD/JPY.
- Liquidity high in cross-currency derivatives
- Possibility of higher returns as compared to INR pairs
- Faster entry and exit as compared to INR pairs
- A small margin amount is all it takes to play in the world’s largest market
- Cash settled in INR
Players in currency derivatives
Traders: Currency derivatives offer traders constant opportunities to trade in currencies because of exchange rate movements in the market.
Hedgers: Currency derivatives even provide hedgers an opportunity to minimise their business risk due to exchange rate fluctuations.
Arbitrageurs: Currency derivatives offer arbitrageurs an opportunity to make money by leveraging the price differential between two exchanges/markets.