How do you see the impact of the weekly currency futures and options launched by the nSE on 07 December on 3 currency pairs?

Nearly 2 years after the NSE had launched weekly options on the USDINR pair, the exchange has officially launched weekly futures contract on 3 remaining pairs of currencies. These weekly contracts will be offered in EUR-INR, GBP-INR and JPY-INR contracts. As of now it has not been extended to cross currency contracts where volumes are yet to pick up.

The NSE is obviously driven by the phenomenal success of the weekly options concept in the Nifty and the Bank Nifty in the equity derivatives market. The weekly options in the Nifty and Bank Nifty have been extremely successful as shorter duration of options and lower premiums have been a magnet for both the parties; option buyers and option sellers.

There are some clear advantages here. The weekly options will allow the traders to hedge their short term risk, which is a lot more relevant in the case of currencies where short term fluctuations have an overt influence on the exchange rates. Factors like FDI flows, FPI flows, forex reserve shifts, Fed policy, currency regulations etc can be played with weekly options.

Additionally, the exchange is also planning to use this opportunity to build volumes in these three contracts in the same way as the USD-INR contracts, which continue to dominate the currency futures markets. For the NSE, the real threat has been the OTC and NDF markets which can substantially diluted if weekly futures and options on all pairs are offered.