Lokeshwarri S.K.
BL research Bureau
The two-year-old exchange-traded currency derivative market, which has been growing since the NSE and the MCX-SX began operating in the second half of 2008, has seen a sharp rise in daily traded volumes following the entry of a third player, the United Stock Exchange (USE).
Daily volumes averaged Rs 30,726 crore between January and end-September when the USE was launched. The average daily volumes have since jumped by 90 per cent to Rs 58,223 crore after the exchange commenced operations.
The growing clout of exchange traded currency derivatives can be gauged from the fact that this segment is almost half the size of equity derivative market on many days.
The availability of new platforms seems to have generated more interest from the trading community. Greater volatility in foreign exchange market with dollar nose-diving and rupee appreciating sharply may also have attracted traders to currency derivatives.
Market share
The USE made an impressive debut on September 20 and garnered over 50 per cent market share on the opening day. The tempo was maintained till the first week of October. But a significant slowdown has been noticeable since then.
While the average market share of the USE in the last 10 days of September was 40 per cent, it dropped to 30 per cent in the first fortnight of October.
The currency futures market was split two ways prior to September. The MCX-SX enjoyed an edge over the NSE with the former's market share in the first eight months of this year being 56 per cent. The equation has changed with the new bourse's entry.
The MCX-SX and the NSE saw a decline in market share. The turnover at NSE and MCX-SX is however, up between 20 and 30 per cent with the growing interest of the trading community towards this product.
The NSE, which was a close second to the MCX-SX until the launch of USE, saw its market share drop from 44 to 30 per cent.
The MCX-SX saw its position as a market leader challenged in the first two weeks of USE's operation. But, it regained this position in October with 40 per cent share in the first two weeks of this month.
With trading in currency options set to commence shortly, the turnover in exchange traded currency derivative products is expected to move up further as traders typically prefer options over futures due to the lower outlay and risk in these instruments.
The scale is tilted against the MCX-SX with the launch of options as SEBI has permitted only the NSE and the USE to commence trading in currency options.
If the MCX-SX is not permitted to trade in these instruments, it could see its share of currency derivatives market go down further.