The regulators have given the nod for introduction of currency futures in India. This is a welcome move which would see a further integration of the Indian financial markets with the global markets. However, this would put a lot more pressure on the regulators in the time to come.

The Reserve Bank of India (RBI) along with the Securities and Exchange Board of India (Sebi) announced the final draft guidelines for the launch of currency futures in India on August 06, 2008. This has been a long awaited move and now the regulators and the participants are in no mood to delay the launching of these exchange-traded currency futures.

Though the derivatives in commodities, equities and indices have already been launched in India, the exchange-traded currency derivatives have till now not been traded here. The corporate entities with foreign currency exposure used to hedge their risk through the Over-The-Counter (OTC) forwards and options. Typically the corporate would enter into a forward contract with a bank and the bank in turn would take a suitable position in the interbank market to honor the commitment to the corporate. But now all this would change with the introduction of the currency futures which would be traded on an organized stock exchange. The corporate can now take a position directly in the futures market-based on its exposure.

Also in the past couple of years, the Indian rupee has seen explosive growth of OTC instruments. As on August 2007, the forex contracts outstanding with the banks were at $1100 bn. Out of this 84% was in forwards and the remaining was in options. Also the percentage of rupee in terms of turnover among all the currencies has gone up from 0.3% in 2004 to 0.7% in 2007. With the coming of the futures, this figure is only set to go up.The RBI has announced guidelines for exchange-traded futures under the name, `Currency Futures Direction 2008'. According to these guidelines, the currency futures has been defined as "a standardized foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract" and currency futures market has been defined as "the market in which currency futures are traded".

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