NSE Seeks RBI Approval For Quanto Cross-Currency Derivatives To Revive Falling Volumes

Currency derivative volumes on India's largest stock exchange have effectively gone to zero. The National Stock Exchange (NSE) wants to fix that with a product most Indian retail investors have never heard of.

The exchange plans to introduce quanto cross-currency derivatives and has sought approval from the Reserve Bank of India (RBI), according to its draft red herring prospectus (DRHP) filed with the Securities and Exchange Board of India (SEBI) for its initial public offering (IPO).

These contracts would allow investors to trade foreign currency pairs, such as the euro-dollar and sterling-yen, while settling all transactions in Indian rupees.

The quanto structure removes the foreign exchange risk from the settlement process. Investors can track global currency movements without actually holding or delivering foreign currency.

Why Is NSE Looking To Launch Quanto Cross-Currency Derivatives?

The proposal comes at a time when trading in India's exchange-traded currency derivatives (ETCD) market has slowed sharply.

In early 2024, the RBI tightened the rules. It asked traders to show documentary proof of an underlying foreign exchange exposure before taking positions in currency derivatives. The aim was to curb speculative trades. It was also done to ensure these contracts were mainly used for hedging.

That change reduced participation from retail investors and other traders who did not have any foreign currency exposure.

The decline can be seen in the numbers. Average daily turnover on the NSE's currency derivatives platform stood at around ₹33,165 crore in March 2024. By June 2026, it came down to nearly ₹5,000 crore.

The situation at the Bombay Stock Exchange (BSE) has been even weaker. Its currency derivatives segment has recorded almost no trading activity since January 2025.

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Why Quanto Products Could Work

The quanto structure sidesteps the hedging mandate problem. Because these contracts settle in rupees under a fixed conversion mechanism, investors do not carry foreign exchange risk into settlement. There is no need to demonstrate underlying exposure to a foreign currency because the investor never actually touches foreign exchange. Profits and losses are calculated in rupees regardless of what happens to the underlying pair.

Industry participants believe this approach could bring back trading activity that shifted off-exchange after the 2024 rule change. A foreign exchange dealer at a state-run bank said the exchange ecosystem, particularly trading volumes, could recover if such products are made available on regulated platforms.

The NSE is also awaiting regulatory approval for other new products including thermal coal futures, interest rate derivatives on the corporate bond index and currency options beyond the existing rupee-based contracts.