5 hrs ago
RBI Tightens Forex Derivative Rules, Adds 20% Risk Reserve
India’s central bank announced new rules for some foreign-currency trades involving the rupee.
The rules were announced on October 10.
A cancelled contract covered by the rules cannot be booked again with an authorised dealer after the directions are issued.
Contracts can still be rolled over when they mature, if existing rules allow it.
The limit for certain trades made without showing the underlying exposure has dropped from $100 million to $5 million.
Dealers must also get a statement confirming that the same exposure has not been hedged elsewhere.
For some qualifying contracts worth more than $2 million, dealers must keep a cash reserve with the central bank.
The RBI says the measures are intended to support an orderly market and improve risk management.
The Reserve Bank of India announced foreign exchange market measures on October 10 through two circulars.
Customers cannot rebook cancelled rupee-involving derivative contracts after the directions are issued; maturity rollovers remain permitted under existing rules.
The threshold for certain transactions without establishing underlying exposure falls from $100 million to $5 million, including exchange-traded rupee currency derivatives across all recognised exchanges combined.
Authorised dealers must obtain and retain customer undertakings confirming that the same exposure has not been hedged with another authorised dealer.
For specified rupee-involving contracts hedging current-account exposure, dealers must hold a cash reserve with the RBI equal to 20% of the rupee-equivalent notional amount when it exceeds $2 million.
- Who
- The Reserve Bank of India announced the measures; authorised dealers and users of covered transactions are affected.
- What
- New rules restrict rebooking cancelled rupee-involving derivatives, lower certain exposure thresholds, require customer undertakings and introduce a Foreign Exchange Risk Reserve.
- Where
- India’s foreign exchange market.
- When
- Announced October 10; the rebooking restriction applies to contracts cancelled after the directions are issued.
- Why
- The RBI said the measures aim to support orderly market functioning, strengthen market discipline and ensure appropriate risk management.
RBI’s stated rationale
Market impact not described
Purpose and effects
RBI’s stated rationale
The RBI says the measures are intended to support orderly market functioning, strengthen market discipline and ensure appropriate risk management.
Market impact not described
The articles provide no opposing assessment from market participants and do not quantify the measures’ effects on users or trading.
Key facts
- Announcing authority
- Reserve Bank of India (RBI)
- Announcement date
- October 10
- Circulars
- A.P. (DIR Series) Circular No. 25 and Circular No. 26
- Threshold change
- From $100 million to $5 million equivalent for specified transactions without establishing underlying exposure
- Rebooking rule
- Covered cancelled rupee-involving contracts cannot be rebooked with an authorised dealer after the directions are issued
- Foreign Exchange Risk Reserve
- Cash reserve equal to 20% of the rupee-equivalent notional amount for qualifying transactions exceeding $2 million equivalent
- Reserve scope
- Specified rupee-involving contracts hedging current-account exposures where the user buys foreign currency against the rupee
Sources
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