Saturday, October 19, 2013

'India gears up to launch interest rate futures




Reuters  |  Mumbai  
 Last Updated at 00:27 IST

 plans to launch trading of government bond futures within the next two months as part of efforts to deepen its financial markets, according to several sources involved in the discussions with the Reserve Bank of India ().

These  (IRFs) would help banks and financial firms in Asia's third-largest economy assess expectations for borrowing costs and hedge the risks of rate changes to their bond portfolios.

It would also provide the country's policymakers with a valuable gauge to measure market expectations for their future rate decisions.


Although the plans are at an advanced stage, the sources said the RBI has not yet finalised the structure of the product, which would allow investors to bet on the direction of interest rates. They declined to be identified publicly commenting on the closely-held discussions.

Getting the structure right is critical for the central bank, which failed in two previous attempts in 2003 and 2009 because of what market participants have said were faulty designs. The RBI Governor has made deepening India's financial markets a priority, in part to prevent trading of derivatives based on domestic products from shifting to foreign markets such as Singapore."This product is Rajan's baby so everyone is on their toes to make it a success. It will be launched in a month or two at the most," said one senior market participant who has been in discussions with the RBI. In response to a query from Reuters, an RBI spokeswoman said: "We are discussing the product with stakeholders."

Although India has active derivatives markets in currencies and equities, it has struggled to develop liquidity in debt derivatives, depriving banks and other financial firms of a hedging opportunity. Banks, insurers, primary dealers and provident funds own about 90 per cent of Indian government bonds. India has a vibrant exchange-traded equities derivatives market, with turnover about 14 times that of cash markets, reflecting the potential demand for rate derivatives.

IRFs are widely used in more developed markets. In South Korea, rate derivatives account for 14 per cent of total derivatives traded on exchanges, according to official data.

Although Indian banks trade over-the-counter interest rate swaps, that structure does not lend itself to long-duration contracts and trading is mostly in the one- and five-year segments. In India, however, the benchmark 10-year bond is by far the most traded.

Sources said the RBI for now is leaning towards benchmarking IRFs contracts against a basket of bonds with varying maturities, as opposed to using only the benchmark 10-year bond as the basis of pricing the contract. Using only one bond future is the preferred option for many market participants since it would simplify the structure. However, the RBI is concerned that traders could seek to influence the market by aggressively trading the underlying bond, according to people involved in the discussions.

"Futures on a particular bond would be very desirable as that should help in hedging the risk on the bond portfolio as closely as possible and not a basket of bonds, as that may not be a perfect hedge," said Nagaraj Kulkarni, senior rate strategist at Standard Chartered Bank in Singapore.

The RBI is also considering making settlements cash-based - a more attractive option for investors than requiring financial firms to deliver the actual security, as was the case in a previous attempt to develop the market.

India's three main exchanges - the National Stock Exchange, Multi Commodity Exchange of India Limited (MCX) and BSE Ltd - are involved in the discussions and expected to allow trading of interest rate futures on their platforms, sources said.

The RBI also is in talks with banks, the Fixed Income Money Market and Derivatives Association of India (FIMMDA), and the Securities and Exchange Board of India (Sebi) to build consensus, the sources said.

The National Stock Exchange declined to comment, while MCX and BSE Ltd did not have immediate comment. FIMMDA declined to comment.

Sebi did not immediately respond to queries from Reuters.

Third time the charm?
India has a spotty history with new market products. The launch in 2011 of credit default swaps did not gain traction with investors.

Market participants say demand for IRFs could be strong if the product is well-structured, as banks and other big bond investors are keen for more hedging tools. Still, as with any derivative, IRFs could be prone to speculative trading that fuels volatility.

The RBI's push to deepen the domestic debt market comes as equities and currency derivatives trade increasingly migrate to markets overseas, such as Singapore.

The offshore market in the partially convertible rupee, for example, has seen average daily trading volumes rise to about $5 billion a day from a few hundred million dollars in 2006, traders say, putting it on par with India's onshore market, where daily spot volumes are around $5-$6 billion

Wal-Mart India investment probe moves to RBI after ED gives clean chit

Reuters
FP :Reuters:19 OCT 2013
Mumbai/ New Delhi: An investigation by Indian authorities into whether Wal-Mart Stores Inc violated local investment rules in 2010 has been referred to the country’s central bank, officials familiar with the matter said.
Last year, the Reserve Bank of India asked the enforcement directorate of the finance ministry to look into whether the world’s largest retailer broke foreign exchange rules when it invested $100 million in an Indian consultancy that also runs supermarkets, sources told Reuters last year.
Wal-Mart, which recently broke up its joint venture in India and said it will independently own and operate its business in the country, has said it has complied with Indian regulations.
The investment was made before the government opened the supermarket sector to foreign companies. 

Officials said the enforcement directorate has passed along its findings to the central bank.
“The ED (enforcement directorate) has investigated the Wal-Mart case and has forwarded its report to the RBI for a decision by the RBI in the matter,” said an enforcement directorate official who is not authorized to speak to the media and declined to be identified.
Another official said: “They have completed their investigation and sent the RBI papers, and now the RBI will do its own examination on whether Wal-Mart violated foreign exchange rules.”
A Wal-Mart spokeswoman said the enforcement directorate has not yet released its findings, and “so we have not seen the result of its review and cannot comment.”
India allowed foreign companies to set up majority-owned supermarkets in the country in September 2012, but no company has so far applied to enter due to lack of clarity around the entry rules.
The RBI declined to comment.











HSBC to shut retail brokerage, depository business in India

HSBC will not open any more new retail brokering accounts with immediate effect, the bank said in a statement on 17 October.
HSBC will not open any more new retail brokering accounts with immediate effect, the bank said in a statement on 17 October.

 Mint :Dinesh Unnikrishnan: 19 CT 2013

About 300 people in HSBC’s retail broking and depository businesses will likely lose their jobs

Mumbai: Hong Kong and Shanghai Banking Corp. Ltd plans to discontinue its retail broking and retail depository services businesses in India, operated under HSBC InvestDirect Securities (India) Ltd, following a review of its business in the country, a spokesperson said on Thursday.
About 300 employees at these two divisions will likely lose their jobs, the spokesperson said. HSBC employs about 30,000 people in India.
HSBC will not open any more new retail broking accounts with immediate effect, the bank said in a statement on Thursday.
The bank said it will notify existing clients of the date of discontinuation of its retail broking and depository services, but will continue to provide them with retail broking services until then.
HSBC said it reviewed all options available for the businesses before deciding on the exit.
HSBC had acquired the retail broking business from IL&FS Investsmart Ltd, the broking arm of Infrastructure Leasing and Financial Services Ltd (IL&FS), in 2008.
Employees being laid off will be offered a fair and equitable severance pay in line with HSBC policy, and career transition services will be extended through a professional agency, the bank said.
The spokesperson said the bank will continue to hire in India.
“HSBC remains committed to India, where it continues to invest in retail banking and wealth management, commercial banking, investment banking and capital markets, institutional broking, asset management and insurance services. India is a priority growth market for HSBC and its presence across 29 cities in the country is integral to HSBC’s global network,” the bank said.

Mighty October :,: Your Struggles develop your Strength

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   Your Struggles develop your Strength