Markets offer early warning signals

India now has the distinction of being one of the rare countries to introduce new derivatives markets this year, at a time when most countries are clamping down with bans or more regulations.

Derivatives, especially the exotic kinds, have become a bad name across the world. India, too, has had its share of problems with over-the-counter (OTC) forex derivatives. One good outcome of all this is that the case for exchange-traded derivatives has only become stronger vis-a-vis OTC markets. It has become increasingly clearer to more policymakers and market participants that wherever standardization is possible, a derivatives contract must be listed on an exchange to avail of the benefits of transparency and the elimination of credit risk through centralized clearing and settlement.

Read more at Livemint

RBI mulls currency futures exchange

Foreign institutional investors unlikely to get a look-in.

The Reserve Bank of India (RBI) is exploring a dedicated currency futures exchange, after taking an in-principle decision to launch rupee-denominated futures.

In its meeting with market participants in Juyly, the RBI has also decided to revive interest rate futures which have failed to take off after being introduced in June 2003.

The central bank is not in favour of currency futures being traded on stock or commodity exchanges as they are regulated by the Securities and Exchange Board of India and Forward Markets Commission (FMC), respectively.

This could dilute RBI’s regulatory power on domestic foreign exchange market which, in turn, could have implications on exchange rate management — RBI’s sole prerogative.

Moreover, the discussion also highlighted the legal issues if futures are allowed on commodity exchange as it happens internationally or on stock exchanges like NSE or BSE.

Read more in Business Standard