Shyamala Gopinath: Launch of currency futures by NSE
Remarks by Ms Shyamala Gopinath, Deputy Governor of the Reserve Bank of India, at the
launch of currency futures by National Stock Exchange of India (NSE), Mumbai,
29 August 2008.
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Honourable Finance Minister, Chairman SEBI Shri Bhave, Chairman NSE, Shri Mathur, MD
& CEO NSE, Shri Ravi Narain, DMD, NSE Smt. Chitra Ramakrishnan, ladies and gentlemen.
We are gathered here to mark an event of great significance in the context of Indian financial
markets. This event is in fulfillment of the announcement made by the Hon. Finance Minister
as part of the Budget Speech in February 2008. It may be recalled that the preparatory work
in this regard had commenced with the setting up of an Internal Group on Currency Futures
in RBI as announced in the Annual Policy, April 2007. Today is the culmination of a process
of extensive consultations and deliberations intended to design a framework for introduction
of currency futures in conjunction with the existing vibrant OTC market.
Let me say a few words on the impressive growth of forex markets in India in the recent past.
As per the BIS Triennial Survey on the global foreign exchange and derivatives market
activity (2007), the foreign exchange market in India has grown into the 16th largest market
in the world in terms of total daily turnover which was US$34 billion in 2007. The OTC
derivatives segment of the foreign exchange market has also increased significantly to
register a daily average turnover of USD 24 billion, which is 17th largest among all countries.
The daily turnover has increased to US$48 billion in 2007-08. The bid-offer spreads are
narrow reflecting the liquidity and efficiency of the market. There is a wide menu of products
available in the OTC market which serves a distinct economic purpose.
The biggest challenge in designing a framework for currency futures in India, I may say, was
the contextual setting in which the foreign exchange market operates in India. There was no
ready template available internationally that we could draw upon since most of the countries
that have active currency futures markets are those which are relatively more convertible on
the capital account. The endeavour was to have a framework which genuinely sought to
provide an additional avenue for risk management while maintaining the integrity of the
existing market microstructure.
The Report of the Internal Group was discussed extensively in the meetings of the Technical
Advisory Committee on financial markets which consists of market participants, experts and
regulators. We have also had the benefit of an array of expert views, including those of the
Ministry of Finance which were indeed valuable in giving final contours to the framework. The
operational aspects were commendably dealt with by the RBI-SEBI Standing Technical
Committee and I must highlight the exemplary inter-regulatory coordinative approach that
has been the hallmark of the entire process. A similar approach is now being adopted in
respect of interest rate futures as well and we may see a fruition of efforts in this regard in a
short time. In this regard, I express deep appreciation of the contribution made by SEBI, and
in particularly the Chairman, in bringing this to fruition.
I congratulate NSE for putting in place the platform in a short time and ensuring a sizeable
number of members at the initial start itself. I believe the currency futures market will
seamlessly complement the existing OTC market. As you may be aware, in all countries,
including developed markets, OTC segment dominates foreign exchange transactions.
The introduction of currency futures, I am sure, will provide further depth and breadth to the
market and fulfill their intended objective as an effective risk management instrument. I would
also like to take this opportunity to urge all the market participants to leverage this significant
milestone for skill development within as well as at a broader industry level.
On behalf of RBI, I would like to assure our continued commitment to orderly and well
thought out development of financial markets, while maintaining financial stability and
integrity.