"One important concern is a loss of onshore market of rupee... the volume of trading of rupee in the NDF (Non Deliverable Forward) market is said to be a multiple of the volumes in the official domestic exchanges," he said at a NSE event.
NDF is a forex derivative instrument, traded over the counter and operated in currencies that are freely convertible unlike the rupee.
Generally, NDF trading are considered speculative and is perceived as one of the reasons for the fall in value of rupee, which had touched the lowest of 68.85 against the US dollar in the last week of August.
The rupee slipped 29 paise to end at 62.12 against the dollar yesterday, the lowest level since December 3.
Considering the size and linkages prevailing between the onshore market and the offshore NDF market, Chidambaram said there is an urgent need to resolve the issues inhibiting the growth of domestic currency derivative markets.
He also mentioned that likely challenges with a launch of rupee derivative on global exchanges should also be taken into account.
"We have to accelerate financial sector reforms to address these concerns," he said, adding the government has been making concerted efforts to push a number of reform initiatives.
Among other reforms for the capital markets, the government has reduced the security transaction tax (STT), set up trading platform for listing of MSME and launched investors protection programmes.


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