As with other market participants, FIIs too have to pay margins for derivatives trading.

The current regulations permit margin payment only in rupees. FIIs, however, would like to make this payment in dollars as rupee payment exposes them to the risk of fluctuations in the rupee value vis-a-vis the dollar and other foreign currencies.

Depositing the initial margin in foreign exchange would require RBI permission. The apex bank wants the FIIs to pay in rupees as it would solve problems relating to inward remittances in foreign exchange.

According to sources in the apex bank, RBI officials fear that acceptance of forex as initial margins could lead to instability and volatility in the derivatives market.

It may be recalled that when Securities and Exchange Board of India (Sebi) had discussed the feasibility of imposing margins on institutions (in the normal cash segment), the issue of payments by FIIs was also raised. At that time it was thought that the mode followed for derivatives trading (at that time derivatives had not yet been launched) could be followed.

While Sebi and RBI are thrashing out the issue, FIIs have preferred to adopt a wait-and-watch attitude to participating in derivatives trading.

JR Varma, full-time member on Sebi board, told The Financial Express that the rather thin volumes on futures segment had been expected by them. Until the really big players such as the domestic and foreign institutions enter futures, it would be difficult for the current players (consisting largely of high net worth individuals) to drive the volumes in the segment.