Dubai trades world's first Indian rupee futures

DUBAI, June 7 (Reuters) A Dubai futures bourse began trading the world's first contracts on the Indian rupee on Thursday without the blessing of India's central bank, which may lose some control over the partially convertible currency.

The Dubai Gold and Commodities Exchange (DGCX) said it launched the non-deliverable rupee-dollar contract to tap India's burgeoning foreign trade, especially with the United Arab Emirates, New Delhi's third largest trading partner.

The DGCX, based in the UAE's commercial hub of Dubai, said it had discussed the contracts with the Reserve Bank of India, which bought billion in the five months to March to check the rupee's rise.

''They would not express an opinion one way or the other, which is in our point of view is quite satisfactory,'' David Rutledge, a director at DGCX, told reporters in Dubai on Wednesday.

''The market is outside the jurisdiction of India's central bank, which places curbs on trading in the rupee.'' The rupee has been convertible on the current account since 1994, meaning it can be changed freely into foreign currency for specific purposes such as trade-related expenses. But it cannot be converted freely for activities such as acquiring overseas assets.

''With the introduction of rupee futures, the Reserve Bank of India's intervention will also become slightly ineffective,'' said Srinivas Sribashyam, head of currency trading at Bank Muscat International, in Oman.

''They will be keenly watching the Dubai rupee futures and it will be another source of frustration for the RBI,'' he said.

The central bank, which says it intervenes to smooth volatility, declined to comment.

''I don't think they like it really.. I don't think they can do anything about it,'' A.V. Rajwade, a member of an official Indian panel on capital account convertibility said in New Delhi.

A central bank-appointed panel has recommended a plan to allow fuller rupee convertibility and greater movement of capital in and out of the local currency by the end of the 2010/11 fiscal year.

India's currency climbed around 9 percent this year on increased capital flows as Asia's fourth-biggest economy expanded at the fastest pace in almost two decades.

Dubai says it wants to ride India's economic growth much as Hong Kong benefited from the rise of China. Dubai set up a stock exchange in 2005 to encourage foreign firms, including those from India, to list in its new dollar-based financial centre, trumpeting it as the birth of the Arab Hong Kong.

Rupees trading in Dubai focused on the key June contract , with more than 300 lots changing hands by midday.

Each non-deliverable rupee-dollar contract will represent 2 million Indian rupees (,360) and prices are be quoted in U.S.

cents per 100 Indian rupees. The maximum price fluctuation will be DUBAI, June 7 (Reuters) A Dubai futures bourse began trading the world's first contracts on the Indian rupee on Thursday without the blessing of India's central bank, which may lose some control over the partially convertible currency.

The Dubai Gold and Commodities Exchange (DGCX) said it launched the non-deliverable rupee-dollar contract to tap India's burgeoning foreign trade, especially with the United Arab Emirates, New Delhi's third largest trading partner.

The DGCX, based in the UAE's commercial hub of Dubai, said it had discussed the contracts with the Reserve Bank of India, which bought $22 billion in the five months to March to check the rupee's rise.

''They would not express an opinion one way or the other, which is in our point of view is quite satisfactory,'' David Rutledge, a director at DGCX, told reporters in Dubai on Wednesday.

''The market is outside the jurisdiction of India's central bank, which places curbs on trading in the rupee.'' The rupee has been convertible on the current account since 1994, meaning it can be changed freely into foreign currency for specific purposes such as trade-related expenses. But it cannot be converted freely for activities such as acquiring overseas assets.

''With the introduction of rupee futures, the Reserve Bank of India's intervention will also become slightly ineffective,'' said Srinivas Sribashyam, head of currency trading at Bank Muscat International, in Oman.

''They will be keenly watching the Dubai rupee futures and it will be another source of frustration for the RBI,'' he said.

The central bank, which says it intervenes to smooth volatility, declined to comment.

''I don't think they like it really.. I don't think they can do anything about it,'' A.V. Rajwade, a member of an official Indian panel on capital account convertibility said in New Delhi.

A central bank-appointed panel has recommended a plan to allow fuller rupee convertibility and greater movement of capital in and out of the local currency by the end of the 2010/11 fiscal year.

India's currency climbed around 9 percent this year on increased capital flows as Asia's fourth-biggest economy expanded at the fastest pace in almost two decades.

Dubai says it wants to ride India's economic growth much as Hong Kong benefited from the rise of China. Dubai set up a stock exchange in 2005 to encourage foreign firms, including those from India, to list in its new dollar-based financial centre, trumpeting it as the birth of the Arab Hong Kong.

Rupees trading in Dubai focused on the key June contract , with more than 300 lots changing hands by midday.

Each non-deliverable rupee-dollar contract will represent 2 million Indian rupees ($49,360) and prices are be quoted in U.S.

cents per 100 Indian rupees. The maximum price fluctuation will be $2 per contract which will be offered in the current calendar month and the following two, the DGCX said.

In case of physical settlement, the euro-equivalent of the settlement price will be calculated, it said.

REUTERS SR RS2100 per contract which will be offered in the current calendar month and the following two, the DGCX said.

In case of physical settlement, the euro-equivalent of the settlement price will be calculated, it said.

REUTERS SR RS2100