Currency Futures Trading may be Extended till 7 pm

Currency traders may be in for longer working hours if the government has its way. The ministry of finance is understood to be backing a proposal to extend trading hours for currency futures, even though exchanges and brokerages are divided on the subject. 

The issue cropped up at a recent meeting between exchanges and finance ministry officials, where it was suggested that trade timings should be extended by two hours to 7 pm. The proposed move, some felt, would help traders respond to global markets. 
It was also proposed that FIIs and NRIs should be allowed to trade in currency futures. "Since RTGS (or electronic money transfer) is allowed up to 7:30 pm, payment and settlement issues can be taken care of without causing additional burden on the banking system. Also, it was debated whether to allow for FII participation in the currency segment since they are allowed to hedge by entering into over-the-counter currency derivative contracts. The issue will be taken up with the Reserve Bank of India," said a person familiar with the discussion. 
Sources said there is no consensus on the issue. "Not all exchanges want longer hours. They also differed on the issue of FII participation. Some felt that it could increase market volatility and would tantamount to de facto convertibility of rupee," according to a person present at the meeting. The proposal has not gone down well with brokers. In fact, they feel equity market timing should be reviewed as no visible benefits have accrued by opening the market early. 
However, sections think that a slice of the offshore trading volume, where global investors punt or hedge on rupee, may shift to India if trading hours are extended. According to Bank for International Settlements (or, BIS), almost half ofthe turnover in currency derivatives (linked to the Indian rupee) happens offshore. "Why only in the evening, we need to push in both directions rather," said Ajay Shah, professor at Delhi-based National Institute of Public Finance and Policy. "In the morning, before India opens, the NDF (or non-deliverable forward) market in Hong Kong and Singapore is discovering the price of the rupee. To compete with this, we should start couple of hours earlier at 7 am, and keep the market open till 8 pm to connect with US market," he said. Non-deliverable forward (NDF) is a cash-settled, short-term forward contract on a foreign currency; since rupee cannot be delivered abroad, the contracts are settled in dollar. As per BIS data, NDF market for the rupee exists in Singapore, Hong Kong, New York and London. The two Asian centres accounted for around 27% of the total (offshore and onshore) dollar-rupee market. FIIs can trade the rupee on NDF markets like Singapore, Dubai, Australia and the UK. At present, FIIs and NRIs are directing the business to the offshore market. "There is no point inblocking them from the onshore market," he said. 
Among other exchange traded derivatives, commodity futures trading takes place till 11:30 pm. This has been the case for the past eight years and there has been no problem in clearing and settlement, said a market participant. Similar to currency derivatives, future prices in commodities like gold and silver are closely linked to global markets. These should be available for trading for a higher timeframe," said an analyst. 
All key US data that influences dollar come in the evening when most Indian markets are closed. Longer currency trading hours could make use of such data, though a strain on brokerages. 
According to Kaushal Sampat, president & CEO — India, Dun & Bradstreet Information Services, "The extension of trading hours will align the domestic markets with those in Europe, the Middle East and the US. Investors will thus be able to trade at a time when key markets are open, thereby paving way for higher volumes and more alignment with global markets." However, the additional burden that this may impose on the system, in terms of back office processing work and bank settlements, remains an area of concern, he said. 
apurv.gupta@timesgroup.com