A RBI working group has suggested calibrated extension of forex market trading hours from 9 am to 9 pm as it would help in gauging demand and potential benefits.
The Reserve Bank of India (RBI), in August 2018, had decided to set up an internal group to comprehensively review the timings of various markets it regulates and the associated payment and settlement infrastructure.
The RBI regulates money markets, Government Securities (G-Sec) market, foreign exchange (Forex) market and the markets for derivatives on interest rate, currency and credit derivatives.
The draft report of the working group said that since RBI is in the process of reviewing and rationalising foreign exchange regulations to provide flexibility in terms of choice of products, participation, positions, extension of market hours would complement these policy measures.
"Thus, calibrated extension of market hours, and to begin with revised market timings of 9 am - 9 pm, may be considered to gauge demand and potential benefits," said the report placed on the RBI's website for stakeholders comments till July 31.
The Foreign Exchange Dealers' Association of India has stipulated market timings for inter-bank USD/INR forex transactions from 9 am to 5 pm. However, authorised dealers are permitted to accept retail transactions beyond these timings.
There are no restrictions on timings for transactions in cross currencies. Banks can decide the trade timings based on their internal policies.
The report further notes that it is operationally easier to extend timings on exchanges as they are already offering extended market hours for commodity and derivative segment.
However, foreign exchange market in India is predominantly over-the-counter (OTC) and hence prices in thinly traded exchanges could be more volatile in the absence of OTC market.
"Extension of exchange timings without corresponding extension in the OTC market could pose risk management issues (valuation and open position) for banks operating in both markets. Therefore, it is desirable to extend trading hours for both OTC and Exchanges," it said.
The working group also suggested that the current market timings for G-sec markets may be retained, on account of lack of demand from participants.
Forex market in India is predominantly a wholesale market, dominated by banks, forex brokers and corporate clients. Customers are priced off-market by banks. Trading in forex and related derivatives takes place OTC as well as on exchanges.