Investors are reportedly leaning towards Singapore after the Indian authorities imposed restrictions on the domestic currency futures, media reports said.
According to a report by Reuters, traders noted that the jump in open interest on Indian Rupee and American Dollar futures on the Singapore Exchange reflected the shift from investors towards the city-state.
The report said that investors are moving their hedging and arbitrage activity to Singapore due to the restrictions imposed by the Reserve Bank of India. Notably, the banking regulator has been trying to hike the volume of rupee derivatives traded in the local market as compared to offshore. This in turn helps the central bank keep more control on the currency.
Earlier in January, the RBI issued amendments in norms that called for underlying foreign exchange exposure for transacting in exchange-traded rupee derivatives. However, the central bank didn’t disclose a specific reason behind the decision.
The officials from the regulator noted that the norms of Foreign Exchange Management Act clearly state that exchange-traded currency derivatives are only meant for hedging. This essentially pushed the hedging activity to the Singapore Exchange. This went against the broader objective of the central bank.
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The open interest in rupee/dollar futures on the Singapore Exchange has been on the rise lately. The report noted that the exchange saw a 400 per cent increase in interest in the trade since the start of the year to 268,000 contracts. This came up to a notional value of approximately $6.5 billion, on the basis of a 7-day average. During 2023, the average open interest was 92,000 contracts.
Comparatively, the open interest on the currency futures on the National Stock Exchange of India more than halved in the same period to 2.7 million contracts, coming up to a notional value of $2.7 billion.