FX Volumes at Bombay Stock Exchange Surpass $1 Billion Since Launch

The Indian rupee has been one of the worst performing currencies against the greenback this year with subdued volumes impacting currency futures volumes on domestic bourses. However, since launching FX futures in November, India's oldest major exchange, the Bombay Stock Exchange (BSE), has seen trading volumes in its newly launched currency derivatives contract skyrocket above the $1 billion mark.

Located in the heart of Mumbai’s financial district, Dalal Street, the BSE has been on the right side of India's currency traders. The exchange reported trading volumes since the 29th of November (16 days) at $1.6 billion or INR10,000 crore. In addition, there were over 22 million contracts that exchanged hands.

Manjit Singh, CEO of Crown Credit Co-Operative Society, a financial services firm, spoke about the rise in volumes in a telephone interview with Forex Magnates: “Although volumes have been low across all exchanges since SEBI’s intervention in July, the BSE’s new Trading Platform has attracted inflows.”

The BSE becomes the fourth venue to launch the controversial rupee futures contract. The first listed currency derivative was launched by Jignesh Shah under his DGCX exchange, consequently India's RBI issued a disclaimer which forbids Indian residents from dealing in margin products.

Data from the BSE website shows the most active contracts are the December and January expiry futures contract. The BSE offers a range of rupee denominated contracts, however the EUR INR contract was the only other contract with activity.

The Indian rupee has been on the wrong side of the market since a sluggish economy and rising inflation over which has been ramping up the dollar against the rupee. The rupee has seen swings of 20% this year and is currently trading at 61.87.

Lifting Up the Rupee

India's central bank was forced to deploy several measures to withstand the storms affecting the rupee which dropped over 20% during the year. The tides were high when the rupee was plagued by a new low against the dollar when reaching 69.1850 (USD INR) in September. One of the many initiatives was to limit the amount of funds that left the Indian shores, as a result the central bank reduced the amount of funds Indian residents can send overseas.

Promoth Manghat, Vice President – Global Operations, UAE Exchange, a global remittance firm commented to Forex Magnates in an emailed statement: “The Government of India and Reserve Bank of India have taken several measures to control the inflation and the weakening of the Rupee. One such measure is to reduce the foreign payment amount that can be transferred from India to other countries using the Liberalized Remittance Scheme (LRS) from the current amount of $200,000 to $75,000.

The LRS provided greater flexibility to remit money outside India, which would now reduce due to the restrictions. The Government aims to reduce the dollar outflow by bringing in the restriction and thus hopes it will help the reserves in the country. This measure will bring a major impact in the retail remittances and the remitters have to go through lengthy process if they wish to remit more than $75,000."

According to data from FXall's (Part of Thomson Reuters) SEF volumes for the 20th of December, NDF volumes across all rupee contracts (value 21st January and 24th January and 13th March and 19th March, 2014) were $7.8 million. In the interbank FX market, the rupee non-deliverable forwards contract trades an average of $1.5 billion a day, among all SEFs, ICAP is the most liquid venue for rupee NDFs.

Commodity Volumes

India is an elastic market, key fundamental data and announcements can have drastic effects on trading activity. Earlier this year, India's government put new measures in place to tax commodity trading, the Commodity Transaction Tax (CTT) was implemented despite protest from the chiefs of all major commodity trading venues. As expected, trading volumes slumped with activity believed to be 40% to 50% lower.

Amar Ambani, Head of Research at IIFL, an Indian regulated broker explained to Forex Magnates in a statement: “Levy of 0.01% CTT has definitely dampened the volumes on the commodity bourses, with MCX average daily turnover down by drastic 40%. This can be explained by the fact that jobbers (speculators) which contributed 40-50% of the MCX volumes are out of the business. Jobbers survived on wafer thin margins and proportionately paid very low transaction costs. After the advent of CTT, the costs have dramatically increased, which has made it difficult for the price sensitive jobbers to sustain."

2014 will be an interesting year for India as the 1.2 billion nation goes to vote. The right-wing BJP is in pole position to overthrow a controversial Congress Government. Asad Hussain a Mumbai-based analyst explained to Forex Magnates: "The BJP is a favourite among India's business community, polls carried out by Team Cvoter show that BJP could win 162 seats next year."