MCX-SX, the currency futures market run by the Multi Commodity Exchange of India Ltd (MCX), has seen a steady growth in average volumes traded daily from Rs 6 crores during its inception in October to around Rs 1,475 crores today. Though the market leader currently sees most of its volumes coming from Mumbai, CEO U Venkataraman believes that the next wave of growth will come from smaller towns which have an export focus. DNA Money's Pranav Nambiar caught up with Venkataraman for a chat on the currency futures trading the country as well as MCX-SX's future roadmap.
 
What is the state of the currency futures market in the country?

The currency futures market in the country is at a nascent stage with the first player, NSE beginning operations in August last year. Currently there are three players in the space - NSE, BSE and ourselves. The market at its peak has generated upto $ 1.2 billion worth of transactions in a day. The main investors are banks, importers, exporters and brokers. Today most of the participants come from major cities like Mumbai which in itself contributes around 60% of the trade through our platform.
 
What are the offerings provided by these exchanges?

The currency futures exchanges offer only plain vanilla currency futures trading facilities. In other words you can enter into an agreement to buy or sell a specified quantity of an underlying currency like the dollar on a specified date in future at a specified rate. There is only cash based settlement and no physical delivery of currency. It basically is a hedge instrument without any exotic products like swaps or options. It can be used by any lay man and as of now only trades in rupee-dollar contracts. Previously these services were only offered by banks through their over the counter services (OTC).
 
Is the RBI looking to add services or make amendments to the existing trading structure?

Based on user surveys the three players (BSE, NSE and MCX) have come up with some recommendations to increase our user base. We have

requested the RBI to permit trading in other currencies like Yen and Euro, increase the lot sizes $1,000 to $10,000, introduce a mini and maxi exchange to cater to small and big traders

respectively, open the exchange for 24 hours considering that the New York markets are open when we shut shop in the evening in India.
 
How is your company faring in the currency futures market?

We have a 51% market share which we hope to build on. We started from Rs 6 crores worth average daily trade during its inception in October to around Rs 1,475 crores today.
 
What is leading to a healthy growth in volumes especially at a time when international trade is at a low?

The currency fluctuations over the last few months have fuelled participants in the market. Currently banks form about 25% of our users while SME's form another 25%. Big corporates and brokers take the rest of the pie. However going ahead we have realised that to become a bigger player and expand the currency futures market in the country folks from smaller towns and cities must be brought into the fold.

 How are you planning to tap into the smaller cities and towns?

When I talk about smaller towns I mean small export hubs which are under penetrated as far as the currency futures markets are concerned. There is a huge potential to tap these areas as many importers and exporters have burned their fingers in the past due to the volatile foreign exchange rates. We have divided these areas into various clusters based on their expertise. For example Tirupur for textiles and Hosur for auto components. We are tying up with local trade associations and the Federation of Indian Export Organisation (FIEO) to spread awareness about MCX - SX and provide training levels and guidance of exchange rate fluctuations and factors affecting it. We are also launching regional language websites like Hindi and Kannada so that anyone can trade on the exchange. We also started an SMS based service where we keep users updated on the exchange rates.
 
You do not charge any money for your services. When do you plan to start generating revenues?

We want to first establish ourselves as a reliable and serious partner. By charging transaction fees without having a strong base would have been counterproductive to start off with and perhaps we would not have seen the kind of response we are receiving today. We have waived off charging transaction fees till April following which we will review our decision based on the user response.

Pranav Nambiar/ DNA-Daily News & Analysis Source: 3D Syndication