By Anil Varma April 20 (Bloomberg) -- India will allow exchange-traded rupee options and interest-rate futures based on a wider range of debt securities, stepping up efforts to develop a derivatives market that can help investors guard against financial risk. Bourses will be permitted to introduce dollar-rupee options and futures based on two- and five-year government bonds and 91- day treasury bills, the central bank said today in its quarterly policy statement in Mumbai. India currently allows over-the- counter currency options and exchange-traded futures on 10-year bonds. The Reserve Bank of India also plans to finalize regulations for customized foreign-exchange derivatives by the end of June. Policy makers are favoring exchange-traded derivatives after the U.S. Securities and Exchange Commission filed a fraud suit last week against Goldman Sachs Group Inc., accusing the bank of selling collateralized debt obligations without disclosing adequate information. The contracts can help investors mitigate risk as trading volumes pick up in India’s financial markets, driven by an economy the central bank predicts will expand 8 percent this fiscal year. “It’s timely that the RBI is boosting the groundwork on derivatives as we need to build avenues for risk management as our markets grow bigger,” said Krishnamurthy Harihar, Mumbai- based treasurer at the Indian unit of FirstRand Ltd., South Africa’s second-largest financial services company. “The emphasis on exchange-traded products is good because they have more transparent prices and more liquidity.” ‘Hedging’ Tools The central bank said it plans to introduce more rupee options “to expand the menu of tools for hedging currency risk.” The contracts give buyers the right to buy or sell a security at a set price on a specific date, while futures oblige their holders to transact on pre-arranged terms. A panel comprising experts from the central bank and the Securities and Exchange Board of India will decide on the details of the planned bond and bill futures, according to the Reserve Bank’s statement. The RBI is also planning to release by July 31 draft regulations for allowing local trading in credit- default swaps, the bank said. The monetary authority plans to ask investors to report all trades in commercial papers and certificates of deposits, short- term debt securities issued by companies and banks. “Although there’s a large CP and CD market, there’s currently little transparency in the secondary-market trades,” the central bank said. “It has been proposed to introduce a reporting platform for all secondary market transactions in commercial papers and certificates of deposit.” To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.

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