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Friday, August 22, 2008

Now, currency futures

In April 2007, I had written an opinion piece titled Currency futures now. Today, in Financial Express I have an opinion piece titled Now, currency futures. In some respects, we do make progress in India. Update: See this article by Rajarshi Singhal in Economic Times today (27th August).

I found a search for `currency futures' on this blog to be a mildly interesting review of the events from 2007 onwards in this space.


  1. Wouldn't it be more preferable to refine the model of Currency Futures in India with only currency and a restricted set of users to begin with.
    Additional things can be gradually added.

    It certainly doesn't serve the economy in the long run to open up gradually than doing too many things at the same time for a new market.

  2. The right way to launch a market is to put all your kindling into the fire right at the outset. If the launch fails, you're holding nothing and all your remaining kindling (e.g. permission for NRIs, permission for options, permission for INR/CNY, etc.) is worthless. Holding off has no benefit, putting it all into day one has substantial gains.

  3. The SEBI/RBI report says that "To begin with, FIIs and NRIs would not be permitted..". Hopefully, its a very temporary restriction.

    The restriction on options might also be a temporary one - the RBI committee report appeared to have a favorable view on options, when describing the international scenario. Even in the case of index futures and options at NSE - they were separated by almost 9 months.

    The restriction on open position at a client level is the GREATER of 6% of the total open interest or 5 million USD as per the joint RBI-SEBI report. The 5 mn limit might never be applied if open interest always exceeds $85 mn, which is expected to be the case.

  4. Even temporary restrictions are really damaging. Lanching markets is very, very hard. At the launch date, every effort should be made to make markets work.

    Suppose the market fails. Then all discussions about restrictions, temporary or not, becomes moot. You have no market. The economy pays a cost (but the typical Indian government agency feels nothing).

    In the best of times, launching markets is hard. All possible effort to make it work should be on the table right on day one, with earnest efforts in good faith by all government agencies.


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