The market regulator wants currency trading timing extended to curb the outflow of foreign exchange to the Dubai and Singapore markets.
The Securities and Exchange Board of India (Sebi) has again begun discussions with bourses on extending the timing for currency trading. Exchanges are ready with technology and market infrastructure but the main issue is to convince the Reserve Bank of India (RBI).
Multiple sources at exchanges have confirmed the development to Moneycontrol.
This is the third time market regulator Sebi has sought the view of exchanges to extend currency trading timing in the last ten years. After getting the bourses’ view Sebi will move the RBI for a discussion.
Currently, the currency market opens at 9 am and ends at 5 pm. But banks trade only till 2 PM due to COVID-19.
A banker who works in the treasury department told Moneycontrol: “Sebi’s own study says that other markets trade for longer hours, with equity derivatives open for 12 hours to 18 hours. Here, our equity market trades for 6.5 hours, and on the other side, the currency market for 8 hours.”
However, the pushback may be coming from the banks themselves. “The problem is not with the exchanges; banks are not ready to extend hours,” said a source.
“The RBI might be concerned that if it extends currency market trading timing then banking operations may have to be open for longer hours, and bankers might have a problem with that,” said another source close to the development. “Secondly, spot market currency will also need to be open for longer hours, and this also requires more resources.”
The RBI and Sebi are yet to respond to queries on this matter from Moneycontrol.
Curbing outflow to Singapore and Dubai
Sebi wants to extend currency trading timing to curb the outflow of foreign exchange to Dubai and Singapore, said a source. “A few months back Sebi internally discussed extending currency trading timing beyond 5 pm to 9 pm. A major concern of Sebi is stopping the major outflow to DGCX (Dubai) and the Singapore exchange,” he explained.
In India, the currency market is at a nascent stage as compared with equity and commodity markets. The National Stock Exchange has daily trading volumes of around Rs 50,000 crore whereas the Bombay Stock Exchange has a trading volume of around Rs 25,000 crore. The Metropolitan Stock Exchange has a daily trading volume of Rs 500 crore.
In India, currency trading mainly revolves around USD-INR, Euro-INR, Japanese Yen-INR and Great Britain Pound-INR trades.
Speaking to Moneycontrol, a market expert felt the timing of currency trading should be extended “as the currency market has a positive co-relationship with precious metals and base metals, which require the USD-INR rate”.
“Gold prices are just a conversion of the Chicago Mercantile Exchange and multiply the dollar conversion rate. Mostly traders move to other overseas exchanges after the currency market closes here to hedge their positions,” he added.“There is a need to extend trading timing. However, the international economic and political situation may not be conducive,” said another source. “There is high volatility due to the COVID-19 situation. Secondly, the US presidential elections, which have an impact globally, are coming up. Tension between China and the United States also triggers high volatility in the Dollar index, which impacts world currencies.”