Offshore currency trading starts trickling in onshore

The Reserve Bank of India’s (RBI’S) effort to bring offshore derivative trading onshore is slowly showing results, at least when it comes to exchange-traded derivative products.

But the non-deliverable futures (NDF) segment, the main concern of the regulator, is an over-the-counter (OTC) instrument, where the data is private and only available with banks, Clearing Corporation of India and the RBI.

The offshore volume — on which the central bank has almost no control — in NDF OTC is more than the onshore volume. To allow some of the trades to happen onshore, the central bank, from June 1, allowed local banks with foreign presence to participate in NDF trading from any location. The offshore volume in the rupee NDF segment is estimated to be over $40 billion.

The exchange-traded segment, done mainly in Dubai and Singapore, is equally important. The volume is nowhere close to the OTC segment’s, but unlike the NDF segment, the deals are transparent and data publicly available.

India INX, which launched its exchange-traded rupee dollar futures and options trading at the GIFT IFSC in May this year, saw trading volume reaching as much as 15 per cent of total currency turnover in offshore exchanges. The average share was 9 per cent in June, with average daily turnover of $237 million, India INX’S MD and CEO V Balasubramaniam said. “We target to reach at least 25 per cent of the offshore currency market share by the end of this year,” he said.

The exchange controls about 90 per cent of the currency markets at the IFSC, which

is based in Ahmedabad. Another player in the same segment at GIFT is NSE IFSC.

At present, participants are IFSC brokers and their foreign clients, such as NRIS, eligible foreign investors and FPIS. “Banks are getting on-boarded and we expect volumes to go up significantly,” said Balasubramaniam.

India INX is also bringing part of the external commercial loans (ECB) to India. According to Balasubramaniam, the exchange has already established mediumterm note (MTN) programmes worth more than $48 billion and bonds listings of over $21 billion. Earlier, these bonds used to get listed at the LSE and Singapore Exchange.

“Even during the Covid-19 period, bonds worth $600 million were listed on the Global Securities Market (GSM) platform of India INX. These were SBI Green Bonds worth $100 million and REC bonds worth $500 million. In February this year, we had ~850-crore masala bonds listed by the Asian Development Bank, which is a supranational company,” he said.

In the India INX exchange, bonds have been listed by firms like IRFC, PFC, EXIM, Adani Group, ONGC, etc. This is partly because the withholding tax on bonds listed in IFSC is 4 per cent, against 5 per cent on those listed on onshore exchanges, according to the latest amendment in Finance Bill.

Now the exchange hopes that it can become a major centre in NDF as well, as 13 banks have started their operations in IFSC to trade in NDF. However, the Covid-19 pandemic has acted as a speed breaker.

“India INX is operational for 22 hours whereas the other exchange in GIFT IFSC is operational for 15 hours and 30 min. DGCX is operational for nearly 17 hours and SGX around 21 hours,” said the CEO.

The exchange wants to use this continuous trading hours in currency as its selling point, he said.

The exchange is also working to start Global Depository Receipt services and expects Indian companies to raise equity from IFSC.