Multi Commodities Exchange (MCX), India’s leading commodities trading bourse, plans to leverage the strong inter-relationship existing between commodities traders and foreign exchange (FX) traders in its planned currency bourse. MCX will also leverage its experiences in running a spot and forward currency trading platform in India and a currency exchange in Dubai for the proposed Indian FX bourse. With the RBI and Securities and Exchange Board of India (Sebi) finally putting together the rules for exchange traded currency futures in place, two bourses – MCX and National Stock Exchange (NSE) have moved ahead to launch their respective FX trading bourses.
With India’s forex reserves over $300 billion and the country set to move to a full convertibility regime, very soon every citizen will be exposed to currency risks. Corporates would need to manage their forex risks more aggressively and hence we feel currency bourses would play an important role. Globally, given the very nature of commodities trading which is majority cross border participants in commodities markets are also very active in the forex market. That is one of the main reasons why globally a major part of forex trading is done on commodities exchanges.
As of now, in India, a select group of banks and RBI registered dealers are allowed to trade in foreign exchange and are allowed to offer only spot and forward contracts. The presence of forex bourses could help bring down the cost of trading and also could bring in higher flexibility and greater choice for hedging forex risks. Commodities traders, mainly exporters and importers, being actual users of foreign currencies, benefit a lot by trading it on the same exchange. Chicago Mercantile Exchange (CME) is the largest forex bourse, which is also one of the leading commodities exchange in the world.
MCX in its efforts to set up a forex bourse, has formed a separate subsidiary which will launch the exchange. The company has also earmarked Rs.100 crore initial investment for the new exchange. MCX also plans to leverage its experience in forex trading in the new venture. For the last six years, the group has a forex trading platform, IBS Forex, running in the market which is used by several banks.
The presence of forex bourses could help bring down the cost of trading and also ensure higher flexibility and greater choice for hedging forex risks.