Market regulator Securities and Exchange Board of India has given approval to National Stock Exchange and United Stock Exchange for trading in currency options, a move that will provide an alternative to investors for hedging against currency fluctuations.
Both the exchanges have been granted approval for trading in options on dollar-rupee pair.
Market watchdog Sebi gave its approval on October 11, USE said in a statement. NSE officials too confirmed receiving the approval.
Currency option is a derivative instrument that gives the owner the right, but not the obligation, to exchange money denominated in one currency into another at a pre-agreed exchange rate on a specified date.
NSE officials said trading in currency options is likely to start within 10 days, after all the approvals are in place.
MCX-SX is another major player in currency trading in the country, and is awaiting Sebi approval for dealing in options.
At present, futures trading in four currency pairs are being offered through the exchanges.
These pairs are dollar-rupee, euro-rupee, yen-rupee and pound-rupee.
In July this year, the Sebi allowed bourses to introduce currency options on the dollar pairing with the rupee.
In August 2008, the market regulator allowed exchanges to introduce currency futures, a forex derivative contract to buy or sell one currency against other on a specified future date, at a price decided in the contract.
Initially, currency futures were limited to rupee-dollar only.
But in January 2010, it was extended to three more currencies the euro, the British pound sterling and the Japanese yen pairing with the rupee.
The Reserve Bank of India and Sebi jointly regulate these products.
While the RBI approves the products, Sebi decides on the trading platforms. Worldwide, the currency derivatives market is bigger than the equities market.
Experts believe that there are greater prospects for growth in currency segment in India, which is a fraction of the size of the equity markets here.
USE started its operations on September 20 by offering trading in currency futures.