Nothing Like a Free Lunch for India’s Currency Traders!

Trading volumes at the Bombay Stock Exchange ’s (BSE) currency futures division are expected to face a slowdown after the country’s oldest trading bourse plans to introduce commissions on orders. The Mumbai-based venue issued a circular to members with details of the transaction charges to be deployed on the first of December, later this year. The move comes as BSE's entrance into the congested FX futures market saw positive trading activity.

The BSE will introduce charges on FX derivatives from December 2014. The exchange, which launched the currency derivatives products last year, was the latest venue to join India’s growing derivatives segment. The BSE became the fourth trading venue to offer traders access to the volatile onshore rupee futures market on the 29th of November 2013, a year during which emerging market currencies suffered the backlash of the FED’s tapering programme. The rupee was one of the worst performing currency pairs against the greenback with a drop of over 20% during the first 8 months of 2013, which saw it hit a record low crossing 69 rupee’s to the dollar in August 2013.

INR Futures off to a Good Start in 2008

India’s FX futures market was jubilant after the 2008 inaugural launch by the NSE & MCX exchanges. However, the turbulent ride impacting the domestic economy in 2011 quickly drifted to the currency and measures to stabilise the rupee by the central bank,which had a direct impact on trading volumes. During its peak years of 2009 to 2011, Indian exchanges collectively traded above $5 billion in daily trading activity, the figure has dropped considerably with 2013 averaging near the $2 billion mark.

Easy Does It

The BSE's new charges will commence in December. Details issued in the circular, on behalf of Rajesh Saraf & Ketan Jantre, in the exchange’s Trading Operations unit state: “Transaction charges on currency derivatives contracts shall not be levied till November 30, 2014, and on Interest Rate derivatives contracts till January 31, 2015.”

The NSE and MCX introduced charges on FX futures in 2011. The BSE has altered its charging approach by implementing a tiered system, the circular states: “In partial modification to above notice, Trading Members of Currency derivatives segment may please note that Exchange proposes to levy the transaction charge on trades done in Currency derivative contracts. The Transaction Charges structure has been designed to give benefit of extremely low cost open source technology and shall be applicable with effect from December 01,2014.”

Salaam Khan, a Hyderabad-based currency broker, explained to Forex Magnates in a comment: “Charges were inevitable, the BSE is introducing them in a fair manner. As a trader when you're not paying commissions and then you suddenly are, it hits your bottom line.”

Indian FX traders executing on the BSE solution will pay lower charges than rivals NSE & MCX, according to the tiered system. The new charges will be rolled out on alternative dates from the first of December until October 2015, with charges from Rs 2 per 10,000,000 (ten million or 1 crore) units traded.

Battle with the Outsiders

India has been battling to safeguard domestic investors and corporates from trading in global G10 currencies and the offshore INR markets for speculative and hedging purposes. In 2007, Dubai-based DGCX was the first overseas trading venue to launch an FX derivatives contract on the rupee, this was subsequently followed by the CME and SGX, as well as other bourses across the globe. The onshore futures market aims to be the source of price discovery on the rupee market that is gaining traction, in the last BIS FX Survey, the USD INR was the seventeenth most active cross against the dollar, total trading volumes in INR contracts were $20 billion a day.

Forex Magnates expects volumes in the Indian rupee to continue to grow as more and more FX & CFD brokers offer the cross, furthermore, India’s international diaspora of 20 million, means that the overseas Indian community can overcome onshore hurdles to trade in CFDs and international margin derivatives.