India allows foreign currency rupee options
Foreign currency rupee options have finally become reality in India, with the Reserve Bank of India (RBI) allowing plain vanilla currency options trading to commence today.
In a circular published June 21, the RBI said it would allow authorised dealers to offer foreign currency-rupee options. But while customers may buy call and put options and packaged products, they are not allowed to enter into structures that would increase their underlying risk, nor can they receive a premium. Customers are not allowed to write options either, according to the circular.
The new development in India’s financial market comes after years of discussions between the regulators and market participants. The RBI is still expected to come up with specific guidelines on interest rate rupee options.
ABN Amro, which is also an authorised dealer, said it expects the Indian foreign exchange options market to "grow rapidly, as multi-nationals and Indian corporates view the benefits of enhanced currency exposure management". The Dutch financial group noted that daily rupee trading volumes are currently worth $5 billion.
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