The Securities and Exchange Organization plans to set up a futures exchange for trading of foreign currencies, director of SEO’s supervisory office said.
“We have already completed our research and provided technical infrastructure and applicable software for the project,” Mahmoud Khajeh-Nassiri told SENA Friday. “Also, our work on the required regulatory framework for the new market has all but ended.”
According to Khajeh-Nassiri, SEO is not after establishing a physical market for foreign currencies. The capital market has long included the futures trading of stocks and gold coins, so “it is possible to start offering foreign currencies on the market in the form of futures contracts.”
A foreign currency futures exchange will work like the currently operating gold futures market at the Iran Mercantile Exchange. SEO’s committee of experts “has made every effort to design a viable market that would look appealing to both the Iranian and foreign investors,” Khajeh-Nassiri stated.
Every economy needs a futures market for official exchange of foreign currencies, he asserted.
“Such a trading arena can act as a great stimulator to the economy through attracting foreign investors, who would definitely find this business profitable if they are assured, based on their own analyses, that they are making a low-risk investment through putting their money into our currency futures market. But they won’t come here if we don’t provide them with a financially secure market structure because it would make their investment prone to unmanageable risk.”
The global forex market is the largest market in the world with over $4 trillion traded daily, according to Bank for International Settlements (BIS) data. The forex market, however, is not the only way for investors and traders to participate in foreign exchange. While not nearly as large as the forex market, the currency futures market has a respectable daily average closer to $100 billion. Currency futures - futures contracts where the underlying commodity is a currency exchange rate - provide access to the foreign exchange market in an environment that is similar to other futures contracts.
Unlike forex, where contracts are traded via currency brokers, currency futures are traded on exchanges that provide regulation in terms of centralized pricing and clearing. The market price for a currency futures contract will be relatively the same regardless of which broker is used. The American company CME Group offers 49 currency futures contracts with over $100 billion in daily liquidity, making it the largest regulated currency futures marketplace in the world. Smaller exchanges are present worldwide, including NYSE Euronext, the Tokyo Financial Exchange (TFX) and the Brazilian Mercantile and Futures Exchange (BM&F).
