Five Minutes with Sunny Arora

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Five Minutes with Sunny Arora, United Stock Exchange of India

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Sunny Arora is president, business development and marketing at United Stock Exchange of India. John Lothian News editor-in-chief Jim Kharouf spoke recently with him about the exchange, which launched in September of 2010 with currency futures.


Q: Who are the participants in the market at the United Stock Exchange?

A: We launched on Sept. 20, and had a record volume for an opening day with 9.8 million contracts and $9.8 billion in notional value. Today we have 330 registered members, and another 190 applications in the process. What we have seen is new members coming on board on the currency platform – people who have not traded currencies with competitors. We’ve seen new broker/dealers and new corporates who have real currency exposure.

On USE, we also offer currency options and we’ve started to see hedgers come on board. USE is promoted by 27 banks along with three major corporates, so you have liquidity providers and liquidity takers. A major foreign bank is going to join us as well, which we have not yet named.


Q: USE started with currencies. How is that going and what are the plans for interest rate futures?

A: We offer four currency pairs right now (USD-INR, BP-INR , Euro-INR and Yen-INR). We’re starting to get a lot of traction there and we launched currency options in October of 2010. Going forward, we’re looking to launch other currency pairs as the market matures.

During the year, we might see new products launched. In India, products are developed jointly with the Indian regulator, where they actually tell you what the product is. But now that the market is two-and-a-half years old, it is at the stage where regulators are gradually opening up the market for participation.

On the interest rate side, last month, they allowed 91-day cash-settled interest rate futures which I think will be very exciting. Interest rate futures in India are not doing a lot right now. With the 91-day cash settled product, I think it will get more traction. We are going to file for regulatory approval.


Q: What is the status on foreign investors, trading in India?

A: On currencies, foreign institutional investors (FIIs) are permitted to trade equity futures but they are not allowed in the currency market right now. Since the market is new, I think the regulator wants it to grow to a certain level before it allows foreign investors in. But I see that happening sooner than later. Both FIIs and non-resident Indians actually have a lot of currency exposure are not allowed to trade in India right now.It’s just a matter of time. Before institutional investors, I think you’ll see non-resident Indians will be allowed to trade.

We’ve seen foreign individual investors allowed in the stock market to trade mutual funds just in March. That was a big thing that we were not expecting. All of sudden, the budget was being processed and it was permitted.

Every year the regulator is allowing more things. The thing about India is that if foreign firms want to come in, they can set up shops in three to four months to trade on the stock market. And whenever other markets are allowed, they can come and trade. We’ve seen one or two firms out of London set up shops in Bombay for currency brokerage, (not for prop trading). So it is doable to set up a subsidiary to come into India and then participate.


Q: Let’s touch on the competition in the currency space. How are you competing with National Stock Exchange of India and Multi Commodity Exchange of India?

A: Our participant-base gives us the edge in terms of liquidity. In terms of products, everyone is the same. But now I think you might see some product differentiation coming in.


Q: Is the market familiar with currency trading or is there an education curve?

A: It’s a large learning curve. In India 2 and a half years ago a normal citizen could not trade currencies. So the story has to be told. People are still not aware of it. We’re out there trying to educate them at a grassroots level. We’re going into schools and making 11th and 12th grade students aware of currencies which will benefit the market overall in the long-term.


Q: How does your partnership with the Bombay Stock Exchange work and help with what you’re trying to do?

A: It’s the first of its kind in India. It was patterned after the CME-NYMEX partnership, where the BSE outsources its technology and anyone connected to BSE gets the USE automatically. There are a lot of synergies. We get their distribution and that’s what we’re riding on today.

We have a new platform that competes with other exchanges called FastTrade. You can log in online, using the Internet, similar to the Intercontinental Exchange.


Q: What’s next for USE?

A: We’ve completed six months of operation in March. We’re looking forward to growing our market share in the currency market. We’re averaging about 10 or 11 percent of the market. The target is to grow that business and target 15- to 20-percent market share in the coming year.