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Mumbai: India hits the button on its first exchange-traded rupee futures tomorrow as part of its push to develop more sophisticated markets and hedging tools, and to beat back a fading challenge from an offshore competitor in Dubai.
Market players expect a steady rather the spectacular start when the National Stock Exchange (NSE) launches rupee futures, as investors overcome tight rules and lack of experience.
The contract size is $1,000, compared with 12.5 million Japanese yen ($115,000) or A$100,000 ($86,000), for a single contract on the Chicago Mercantile Exchange.
The trading limit for individuals is $5 million and for trading members $25 million - not much even for a small bank trading $200-$300 million daily on the forwards market - and foreign institutional investors are excluded from the market.
"This will keep serious forex users like importers and exporters of reasonable size out of the markets for now," said Jayant Manglik, head of commodity business at Religare Commodities.
"But a beginning has been made and as the limits increase, larger players too will start taking positions."
Furthermore, trading hours are 9am to 5pm, the same as the spot market, which dealers say makes futures of limited use as a lead indicator and no use for after-hours hedging.
The Bombay Stock Exchange and the Multi Commodity Exchange of India, also plan to launch futures to complement an active over-the-counter forwards market.
Rupee trading is dominated by the spot market. Forwards contracts are offered for up to 12 months, and cash plus forward market daily volume is estimated at $34 billion.
Senior dealers at Citi-bank, Standard Chartered and HSBC say banks will wait for volumes to swell before dealing heavily. Traders at Indian banks ICICI Bank and HDFC Bank and State Bank of India say they are also keen.
Last year, the Dubai Gold and Commodities Exchange launched a non-deliverable futures contract with a lot size of Rs20 million. But analysts say take-up there has been tepid as offshore rupee forwards in Singapore and New York are more liquid.
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