Indian Multi-Asset Exchange MCX-SX Aims to Bolster FX Volumes - Reduces Commissions

Currency futures traders in Asia’s second most populous nation, India, are expected to increase their trading volumes as one of the country’s largest derivatives trading venues will be altering its charging structure for certain financial futures contracts. The move is expected to create a possible price war as the MCX-SX competes with rivals BSE and NSE for the nation's vibrant FX market.

The MCX-SX Stock Exchange, a leading multi-asset bourse, has issued a circular which states that it has revised commission charges on non-USD FX instruments traded against the rupee. The move comes on the back of declining volumes at the bourse, as the recent NSEL scam still takes its toll.

Recent entrant to the FX trading environment in India, the Bombay Stock Exchange (BSE) has gradually been increasing its foothold in the two-venue race. In addition, the BSE announced its acquisition of the United Stock Exchange thus reducing the total number of execution venues to three. The BSE's current reduced charging mechanism will be amended on the first of December when users face charges for currency transactions.

Under the terms, MCX-SX users will only pay one side of a transaction on the rupee against the euro, British pound and Japanese yen. Traders will not face any changes on the INR/ USD cross that holds a fee of $1.625 per 10 million (rupees) traded.

"It has been decided to revise transaction charges of currency futures contracts traded in currency derivatives segment of the exchange to enhance Liquidity and make the segment more attractive to participants in the market," the exchange's circular read.

The new revisions were implemented on the 5th of November by the exchange.

India’s currency futures market has seen a spree of events that have impacted the market, primarily driven by domestic inflation and the Fed's Tapering. Consequently, regulators and policy makers have been attempting to calm the markets down after last year’s rupee debacle which saw the cross drop over 20% against the greenback. On the upside, the Indian rupee has outperformed its peers this year, latest data showing that it has risen from an all-time low of 68.845 per dollar traded last year in August, year-to-date the cross is up 1.5%.

Md. Arman, Vice President - Business Strategy Group at MC Securities in Kolkata, explained to Forex Magnates that the FX markets are price sensitive, he said: “During the initial roll-out of FX futures in 2008, there were no charges, hence activity was strong, since the main exchanges introduced charges, coupled with the rupee's crash volumes have shrunk significantly.”

MCX-SX Struggles

The MCX-SX has been on the receiving end of the NSEL issue which saw the spot-exchange face charges of fraud and suspended by the authorities. The MCX-SX has been caught in the middle as its promoters, Financial Technologies India Limited are involved in both the MCX-SX and NSEL.

The BSE has been racing ahead as the preferred venue for currency trading. Most recent data reported by the main financial markets regulator, SEBI, showed that in September the BSE saw a sharp rise in FX volumes, with an increase of 22%, nearing the one billion a day mark in value.

Salam Khan, Head-Currency Derivatives at PCS Securities Limited in Hyderabad commented: “The BSE is a known brand with a vast consumer base among both retail and institutional traders; I can see them surpassing their competitors as the leading FX venue in India.”