NSE’s loss, Singapore’s gain: Rupee volumes on SGX surge as FII leave in hordes

livemint.com:

MUMBAI : Mumbai: The Reserve Bank of India’s decision to curtail trading in exchange-traded currency derivatives has surfaced an unintended beneficiary some 4,000 km away—the Singapore Exchange, or SGX. Volumes of rupee-dollar futures on the Singapore Exchange have surged since RBI’s restriction—which came into effect on 3 May—crimped volumes on India’s National Stock Exchange. NSE had enjoyed a 94% share in India’s exchange-traded currency derivatives segment.

Market experts had warned that RBI’s decision to allow trading in exchange-traded currency derivatives on NSE and BSE to only those with underlying contracted exposure would end its use to hedge foreign exchange risks. The rule, announced in January, implied that only those with foreign currency exposure could trade in exchange-traded currency derivatives. Earlier, users having positions of up to $100 million each in any exchange-traded currency derivatives contract involving the rupee didn’t need to have an underlying position.

Also read | Mint explainer: Is it the end of exchange-traded currency derivatives? Currency market experts attribute the increased trading of rupee-dollar futures on the Singapore Exchange to foreign institutional investors shifting to the island nation for such hedges, apart from the Indian rupee’s recent depreciation. After remaining stable for months at between 81.5 and 83 to the US dollar, the rupee fell to 83.6 in June. FIIs previously had the option of arbitraging dollar-rupee futures contracts on both NSE and SGX, with the same currency pair on the offshore non-deliverable forwards market (NDF).