Average daily turnover in currency derivatives market falls around 73% so far this fiscal, shows data

Currency Derivatives

The average daily turnover in the currency derivatives market has fallen around 73 percent so far in this financial year due to the unwinding of existing contracts following the Reserve Bank of India (RBI) directive tightening exposure in such contracts, foreign exchange experts said.

According to the data compiled from the National Stock Exchange of India (NSE), the average daily turnover stood at Rs 39,629.44 crore on April 10, 2024, as compared to Rs 1.46 lakh crore at the end of FY24.

Turnover refers to the total volume of all executed transactions in a given time period.

“The fall is witnessed as most participants are unwinding their positions and avoiding taking fresh positions. The participants and brokers are clear about regulations. Brokers have started taking preemptive measures by taking declaration and related proof of underlying exposure,” said Dilip Parmar, a foreign exchange analyst at HDFC Securities.

The sharp decline in average daily turnover was witnessed after the Reserve Bank of India (RBI) on April 4 did not make any changes in the currency derivatives norms it notified via a January 5 circular, and just extended the deadline for implementation.

Also read: Will RBI's new currency derivatives norms wipe out most exchange traded volumes?

The norms

As per the norms, investors must ensure the existence of a valid underlying contracted exposure, which has not been hedged using any other derivative contract, and that they should be in a position to establish the same if required, the RBI said in a January 5 circular.

The underlying derivatives contract refers to the order bill, or receipt in the case of exporters and importers, or documents to support the transaction in the case of remittances.

Amit Pabari, Managing Director of CR Forex, said the delay seems to indicate that the RBI is reconsidering its approach towards speculators, possibly with the intention of establishing a mutually beneficial arrangement with them.

“The RBI aims to ensure that speculative trading activities do not unduly influence the overall value of the currency, emphasising the importance of maintaining stability based on fundamental factors and the RBI's policy stance,” Pabari added.

Daily turnover

The total turnover on a daily basis has also seen a sharp decline after April 4.

The total turnover, which includes currency futures and currency options turnover, was Rs 1,00,915.86 crore on April 2, Rs 73,173.68 crore on April 3, and Rs 39,063.69 crore on April 4, NSE data showed.

After the deadline extension, the total turnover also fell sharply to just Rs 9,064.83 crore on April 5, Rs 6,292.28 crore on April 8, and Rs 9,266.27 crore on April 10, according to the data.

“During this period it is anticipated that trading volume will stay subdued, resulting in wider bid-ask spreads across various maturities and strike prices,” Pabari said.

Also read: Bourses ask brokers to ensure compliance with RBI directive on currency derivatives' trading

Derivatives contracts
On April 9, Moneycontrol reported that open interest currency derivatives contracts on the exchanges fell around 47 percent over the past two weeks. Although the RBI extended the April 5 deadline for meeting currency derivatives norms, most participants avoided taking fresh positions and continued to unwind their existing contracts, foreign exchange experts said.

Open interest is the total number of outstanding derivative contracts for an asset—such as options or futures—that have not been settled.

According to the NSE data, open interest futures contracts fell to 32,85,264 on April 10, from 62,59,762 on March 27.