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Company

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CURRNC DERIVATIVE$

The Future lies here.

Agenda
1. Introduction

2. Currency Derivative Markets


3. Factors affecting Currency Markets
4. Some Interesting Facts

5. Potential Market Participants


6. Trading Process
7. Contract Specifications
8. Risk Management
9. Why SMC ?
10. How to get Started ?

Introduction
Definition:
A currency forward contract that is standardized,
exchange-traded and guaranteed by the clearing
corporation is called a currency futures. A large currency
forward market already exists

Need:
To enable concern to manage high volatility of Foreign
Exchange Market
High Transparency, efficiency and accessibility in
determining the Future Currency Exchange Rate.
MTM Obligations are to be settled on Daily Basis.
Back

Currency Derivative Markets


Global Foreign Exchange Markets:
Currency futures were first traded in Chicago Mercantile Exchange
(CME) in 1972
Average Daily Turnover in worlds main financial markets accounts
for $ 3.21 trillion. Break up of which is as follows:

Spot Transactions: $ 1.005 trillion


Outright Forwards: $ 362 billion
Forex Swaps: $ 1.714 trillion
Others: $ 129 billion

Global Forex derivative markets are active 24 hours a day


Some of the major currency future exchanges are:
Chicago Mercantile Exchange (CME)
Euronext Liffe
Tokyo Financial Exchange

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Currency Derivative Markets


Main Trading Center

London
34.1%

Singapore

New York
16.6%

Global
Trading
Centers
(3.98 tn)

Hong
Kong

Tokyo
6%

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Currency Derivative Markets


Indian Foreign Exchange Markets:
INR trades in a managed floating exchange rate regime
Daily average turnover of forward contracts in OTC
market is USD 34 BN and 334 MN contracts in a Year
INR is fully convertible on Indias Current Account, but
not on the Capital Account
FII can fully repatriate the investments
Resident Indians can invest offshore
All foreign currency spot & forward transactions need to
be routed through scheduled commercial banks /
Authorized Dealers
Volumes & tenor is restricted to underlying exposure
Only banks have open position limits
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Currency Derivative Markets


Indian Foreign Exchange Markets:
Flows driving the USDINR rate include:
Trade & Capital Flows & its hedging by corporate & institutional
clients
Remittances by NRIs
Investments by offshore institutions in India & by Indians
companies offshore
Directional views of market participants

Indias Total Imports USD 250 BN, Total Exports


USD 160BN (FY06-07)
Capital Flows - FIIs - USD 31 BN, FDI - USD 15 BN, Bank
Capital USD 11 BN

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OTC v/s Currency Derivatives


OTC Market

Exchange Traded
Futures

Accessibility

Low

High

Price Transparency

Low

High

Liquidity

Subject to credit
limits

High

Agreements

Customized

Standard

Credit Exposure

Yes

Mitigated through the


clearing corporation

Settlement

Physical Delivery

Net settled in INR

Underlying

Required

Not Required

Compliance

High

Low

Basis

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Equity v/s Currency Futures


Basis

Equity Futures

Currency Futures

Product Traded

Equity

Foreign Currency

Lot Size

Varies from company to


company

At present Lot Size is


$1000.

Regulatory Authority

SEBI

RBI & SEBI both

Market Timings

5 Days a week from 9.55


am to 4 pm.

5 days a week from 9 am


to 5 pm.

Market Volatility

More

Low as regulated by RBI

Deriving Force

Market value of the


company whose share is
being traded

Economy of country whose


currency is being traded &
International Economy

Contract Period

Maturity of 3 months

Maximum maturity of 12
months
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Factors affecting markets

Macro economic views


Monetary Policy
RBI intervention
Flow information
Performance of other Asian currencies
Performance of equity markets
USD Sentiments
Performance of key commodities affecting trade
Policy announcements affecting flows trade or capital
REER Real Effective Exchange Rate
Data Announcements
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Some Interesting Facts


Forex Markets is the biggest financial market in the world
USD is the most traded currency in the world (Table
Attached)
Indian Rupee currency future was first launched in DGCX
i.e. Dubai Gold & Commodity Exchange
The 10 most active traders account for almost 73% of
total trading volume (Table Attached)
Currency Derivative (Rupee v/s Dollar) is a low volatility
product. Overall annualized volatility from 9 April 93 till 4
July 08 was 4.36% per year (Table Attached)

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Some Interesting Facts

Share of India in Global Foreign Exchange Market has


increased from 0.3% to 0.9% in 2007
Foreign Exchange Trading increased by 38% between
April 05 & April 06 & has more than doubled since 2001
NSE is the 1st to trade in currency futures in India
BSE & MCX also applied for the same
1st trading date in NSE is 29th Aug 08
Only USDINR would be available for trading initially

Back

Top 10 Currency Traders


% of overall volume, May 2008

Rank

Name

Volume

Deutsche Bank

21.70%

UBS AG

15.80%

Barclays Capital

9.12%

CITI

7.49%

Royal Bank of Scotland

7.30%

JPMorgan

4.19%

HSBC

4.10%

Lehman Brothers

3.58%

Goldman Sachs

3.47%

10

Morgan Stanley

2.86%
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Most Traded Currencies


Rank

Name

Volume

USD

43.15%

Euro

18.50%

Japanese Yen

8.25%

Pound

7.50%

Swiss Franc

3.40%

Australian Dollar

3.35%

Canadian Dollar

2.10%

Swedish Krona

1.40%

Hong Kong Dollar

1.40%

10

Norwegian Krone

1.10%

11

New Zealand Dollar

0.95%

12

Mexican Peso

0.65%
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Currency Volatility Matrix


Volatilities (annualized) of various currency pairs (%)

INR
USD
GBP
EUR

USD

GBP

EUR

JPY

4.356

8.690

10.173

11.929

7.949

9.530

11.527

7.215

12.260
11.524

Calculated from 9th April 1993 till 4th July 2008


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Currencies of Indian Interest

Euro
Yen
USD $
Rupee Rs.
Pound
Yuan

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Potential Market Participants


At present, NRI & FII
participation is prohibited

Mutual
Funds

Institutions

Retails

Currency
Derivative
Banks

Corporate

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Scope of Currency Futures

Directional
Views

Positioning
for
Appreciation/
Depreciation
for traded
currency

Hedging

Hedging
of
Payables
Receivables
FCY loans
Investment

Trade &
Capital
Flows

Remittance
for
Trade or
Services &
Capital
Transactions

Arbitrage

Entities
accessing
On Shore &
NonDeliverable
Markets

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Trading Process

Client
ClientOrder
places
order
through SMC
trading
platform
Order gets
routed
Client
to
Registration Exchange
All
mechanisms of
order would
be
same as in
F&O

Trade
Exchange
Execution
acts
as
platform b/w
buyers &
sellers
Orders
will be

compared by
price-time
priority

Trade will
Exchange
Confirmation
provide
confirmation
of
trades which
are
executed
by
various
participants

be

SMC in
turn will
provide

executed
once bid &

confirmations to

Trade will

Back

Contract Specifications
Category

Description

Underlying

Rate of exchange between 1 USD & INR.

Contract Size

USD 1000

Contract Months

12 Near Calendar Months

Expiration Date & Time

Last Business Day of the month

Min Price Fluctuation

0.25 paisa or INR 0.0025

Position Limits

6 % of total open interest or USD 5 million


whichever is higher

Settlement

Cash Settled in INR on relevant RBI


Reference Rate on contract expiry date.

Contract Fixing

2 Days prior to contract expiration date

Market Timings

From morning 9 am to evening 5 pm.


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Risk Management

Real time upfront portfolio based margins


Based on 99% VaR
Client level monitoring of risk
Initial Margin
Margin calculated using SPAN
Min initial margin 1.75% on day 1, 1% thereafter
Calendar spread margins defined at Rs. 250
Extreme Loss Margin
1% on value of gross open positions
Mark to market settlement

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Why SMC ?

Presence in more than 1350 locations across India

Trade in Equity & Derivatives at NSE , BSE , NSE F&O , BSE F&O

Online IPO & Mutual Funds*

Online Commodities both at NCDEX & MCX

Currency Futures Available

Live Quotes

Multiple Payment Gateways / Banks

Excellent Research Support

Competitive Brokerages & Charges

SMS Facility available

Dedicated Relationship Manager

User Friendly site

Online Back Office Reports

Dedicated Customer Care & Support


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About SMC
Broking Services

Equity

Equity
Derivative

Commodity

Currency
Derivative

Back

How to get started ?


Documents Required:

Completed Client Registration Form


Copy of PAN Card
Copy of Address proof
Bank Statement / Cancelled cheque
For Corporate Clients
Memorandum of Association
Articles of Association
Details of all Directors

Back

Contact Us
Visit Your Nearest SMC Branch / Sub broker
Or
Call us @ +91 11 30111333
Trading Members
Sub brokers
Branches

Mr. Rakesh Gupta (DirectorOperations)


Mr. Mohit Shyngle
+91 9810755567
Mr. Sunil Goyal
+91 9350504757
Mr. Rajesh Sharma
+91 9810910144
Mr. Ashish Gupta
+91 9958696933
Mr. Kapil Suri
+91 9958992020
Mr. Ankush Goel
+91 9891503703

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