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TMI BlogIntroduction of Exchange Traded Cross Currency Derivatives contracts on EUR-USD, GBP-USD and USD-JPY currency pairs and Exchange Traded Option contracts on EUR-INR, GBP-INR and JPY-INR currency pairsX X X X Extracts X X X X X X X X Extracts X X X X ..... roduce cross-currency futures and options contracts on EUR-USD, GBP-USD and USD-JPY. The details in terms of product design, margins and position limits for the specified currency pairs are as given under Annexure I. 3. Further, it has also been decided to permit recognized stock exchanges to introduce currency options on EUR-INR, GBP-INR and JPY-INR currency pairs. The details in terms of product design, margins and position limits for the three additional currency pairs are as given under Annexure II. 4. Eligible market participants, i.e., stock brokers, domestic institutional investors, FPIs and clients, are allowed to take positions in the exchange traded cross-currency futures and option contracts in the EUR-USD, GBP-USD and USD-JPY currency pairs and exchange traded currency option contracts in EUR-INR, GBP-INR and JPY-INR currency pairs, subject to terms and conditions mentioned in this circular and the aforesaid circular of RBI. 5. The existing limits of USD 15 million for USD-INR contracts and USD 5 million for non USD-INR contracts (i.e. EUR-INR, GBP-INR and JPY-INR), all put together, per exchange, without having to establish underlying exposure, as laid down in SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracts (including cross-currency futures contracts) (a) Stock exchanges shall set the daily dynamic price bands of the currency futures contracts as mentioned in the table below: Contracts with tenure up to 6 months ± 3% of the theoretical price or the previous day closing price, as applicable Contracts with tenure greater than 6 months ± 5% of the theoretical price or the previous day closing price, as applicable (b) The dynamic price bands shall be relaxed in increments of 1% as and when a market-wide trend is observed. (ii) Dynamic Price Bands for currency options contracts (including cross-currency options contracts) (a) For currency options, stock exchanges shall implement a dynamic price band mechanism based on theoretical price of contracts. (b) The dynamic price bands shall be relaxed as and when a market wide trend is observed in situations of high volatility. (iii) Stock exchanges shall frame suitable rules with mutual consultation for such relaxation of dynamic price bands and shall make it known to the market. 10. Before the launch of the cross-currency derivatives product(s) and currency options on EUR-INR, GBP-INR and JPY-INR currency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) EUR-USD: The contract would be quoted in USD terms. The outstanding positions would be in Euro terms. (ii) GBP-USD: The contract would be quoted in USD terms. The outstanding positions would be in GBP terms. (iii) USD-JPY: The contract would be quoted in JPY terms. The outstanding positions would be in USD terms. 5. Available contracts (i) Futures contracts: Twelve (12) serial monthly contracts. (ii) Options contracts (Premium styled European Call and Put Options): Three (3) serial monthly contracts followed by three (3) quarterly contracts of the cycle March / June / September / December. 6. Strike price of option contracts Minimum of three (3) in-the-money, three (3) out-of the-money and one (1) near-the-money strikes shall be provided for all available contracts. 7. Last trading day The last trading day for the contracts shall be two working days prior to the last working day of the expiry month at 12:30 p.m. If any last trading day is a trading holiday, then the last trading day shall be the previous trading day. 8. Final Settlement Day The contract would settle on the last working day (excluding Saturdays) of the month. The last working day would be take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its for stock brokers (banks and non-bank), Category I & II FPIs, Domestic Institutional investors (DIIs) as permitted by the respective sectoral regulators and AD Category-I banks Currency Pair Position limits EUR-USD Gross open position across all contracts shall not exceed 15% of the total open interest or EUR 100 million, whichever is higher GBP-USD Gross open position across all contracts shall not exceed 15% of the total open interest or GBP 100 million, whichever is higher. USD-JPY Gross open position across all contracts shall not exceed 15% of the total open interest or USD 100 million, whichever is higher. The aforementioned limits shall be the total limits available to the stock brokers for taking positions on proprietary basis and for positions of their clients. (ii) Position limits for proprietary position of non-bank stock brokers Currency Pair Position limits EUR-USD Gross open position across all contracts shall not exceed 15% of the total open interest or EUR 50 million, whichever is higher GBP-USD Gross open position across all contracts shall not exceed 15% of the total open interest or GBP 50 million, whichever is higher. USD-JPY Gross open p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /DNPD/Cir-38/2008 dated August 06, 2008 and would be the standard deviation of daily logarithmic returns of futures price. For the purpose of calculation of option values, the following standard option pricing models - Black-Scholes, Binomial, Merton would be used. The initial margin shall be deducted from the liquid assets of the clearing member on an online, real time basis. (ii) Extreme Loss margin The extreme loss margin shall be deducted from the liquid assets of the clearing member on an online, real time basis. Futures: The extreme loss margin shall be 1% of the mark to market value of the contract for all gross open positions. Options: The extreme loss margin shall be 1% of the notional value of the open short option position. Notional Value would be calculated on the basis of the latest exchange rate published by RBI for respective exchange rate. (iii) Net Option Value The Net Option Value is the current market value of the option times the number of options (positive for long options and negative for short options) in the portfolio. The Net Option Value would be added to the Liquid Net Worth of the clearing member. Thus, mark to market gains and losses wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise settlement value payable by a clearing member towards exercise settlement. Assignment margin shall be levied till the completion of pay-in towards the exercise settlement. Assignment margins shall be computed as net of assignment settlement and futures final settlement. Annexure II Product Design and Risk Management framework for Exchange Traded Options on EUR-INR, GBP-INR and JPY-INR Spot Rate 1. Underlying (i) Euro - Indian Rupee Spot Rate (EUR-INR) (ii) Pound Sterling - Indian Rupee Spot Rate (GBP-INR) (iii) Japanese Yen - Indian Rupee Spot Rate (JPY-INR) 2. Type of option Premium styled European Call and Put Options 3. Trading Hours 09:00 a.m. to 05:00 p.m. 4. Size of the contract (i) EUR-INR: EUR 1,000 (ii) GBP-INR: GBP 1,000 (iii) JPY-INR: JPY 100,000 5. Quotation The premium would be quoted in INR terms. However, the outstanding position would be in respective foreign currency terms, i.e. Euro for EUR-INR, GBP for GBP-INR and JPY in JPY-INR. 6. Available contracts Three (3) serial monthly contracts followed by three (3) quarterly contracts of the cycle March / June / September / December. 7. Strike price Minimum of three (3) in-the-money, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standard deviation and volatility range for generating the scenarios would be 3%. The sigma would be calculated using the methodology specified for currency futures in SEBI circular SEBI/DNPD/Cir-38/2008 dated August 06, 2008 and would be the standard deviation of daily logarithmic returns of futures price. For the purpose of calculation of option values, the following standard option pricing models - Black-Scholes, Binomial, Merton would be used. The initial margin shall be deducted from the liquid assets of the clearing member on an online, real time basis. (ii) Extreme Loss margin Extreme loss margin shall be equal to the following percentages of the notional value of the open short option position. * EUR-INR: 1.5% * GBP-INR: 1.5% * JPY-INR: 1.5% Notional Value would be calculated on the basis of the latest exchange rate published by Reserve Bank for respective FCY-INR. The extreme loss margin shall be deducted from the liquid assets of the clearing member on an online, real time basis. (iii) Net Option Value The Net Option Value is the current market value of the option times the number of options (positive for long options and negative for sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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