Investors shift to Singapore Exchange after RBI's curbs on rupee futures

16 Jul, 2024

Following restrictions by the Indian central bank on local currency futures, investors are increasingly turning to the Singapore Exchange for arbitrage and hedging activities in rupee/dollar currency futures. The Reserve Bank of India aimed to boost the volume of rupee derivatives traded domestically to enhance currency control. However, new rules implemented in January mandated underlying foreign exchange exposure for transactions in exchange-traded rupee derivatives, ostensibly to align with Foreign Exchange Management Act regulations emphasizing derivatives for hedging purposes.

This regulatory shift unintentionally redirected hedging activity to the Singapore Exchange, contrary to the RBI's initial objectives. Consequently, open interest in rupee/dollar futures on the Singapore Exchange surged by 400% since the year's onset, reaching 268,000 contracts. This spike reflects a notional value nearing $6.5 billion, based on a 7-day average, surpassing the average open interest of 92,000 contracts in 2023. The trend underscores a significant shift in market dynamics as investors seek alternative avenues for currency futures trading amid regulatory changes affecting the Indian market.

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