bTo enable investors manage volatility in the currency markets, market regulator Securities and Exchange Board of India (Sebi) today said exchange-traded currency futures would be permitted in the next three months.

Sebi will next work on interest rate futures and creating exchange for small and medium enterprises, Sebi Chairman C B Bhave said at the annual general meeting of Assocham here.

"Today, regulators have to see that our markets are as complete as it could be...In the next three months, you will see the start of exchange-traded currency futures in this country," he said.

"We also have to see that we give access to markets... There are variety of issuers in the country. It cannot be that there are only top 500 companies in this country. Therefore, the next thing on our minds is the creation of exchange for SMEs." In a discussion paper, Sebi had proposed creation of bourse for SMEs and suggested fixing of investment limit of Rs 5 lakh for these IPOs.

Asked whether Indian markets are prepared for currency futures, Bhave said, "I think our market is ready for it." He said currency futures are already allowed in Over-The- Counter (OTC) market.

"It is not that we are not exposed to it at all. The attempt of Sebi and the central bank is to create exchange-traded currency futures as they are far easier to be regulated and contain risks better than the OTC market," he added.

According to an RBI-Sebi panel's report on currency futures, exchange traded futures as compared to OTC forwards serve the same economic purpose, yet differ in fundamental ways. An individual entering into a forward contract agrees to transact at a forward price on a future date.

On the maturity date, the obligation of the individual equals the forward price at which the contract was executed. Except on the maturity date, no money changes hands.

On the other hand, in the case of an exchange-traded futures contract, mark to market obligations are settled on a daily basis. Since the profits or losses in the futures market are collected and paid on a daily basis, the scope of building up of mark to market losses in the books of various participants gets limited, the report said.

The panel had suggested introduction of currency futures markets, initially for dollar-rupee contract. It also proposed that initially FIIs and NRIs would not be permitted to participate in currency futures and the minimum size of the futures contract be $1,000.

Bhave said Sebi will next start working on interest rate derivatives. He said a technical committee of RBI and Sebi will work on suggestions received from various quarters on the central bank's paper on interest rates futures. Only after that, some idea on time-table for its introduction could be made, he said.