Mumbai, Apr 5: The RBI on Thursday issued a clarification on its exchange traded currency derivatives (ETCD) circular and has decided that these directions will now come into effect from May 3, 2024, instead of April 5 as was announced earlier.
The RBI said that the postponement in the date of implementation of the circular, by about a month, has been made in view of feedback received and recent developments related to some concerns expressed about participation in the ETCD market.
The RBI has pointed out that the regulatory framework for participation in ETCDs involving the Indian rupee is guided by the provisions of the Foreign Exchange Management Act (FEMA) and regulations framed thereunder which mandate that currency derivative contracts involving the Indian Rupee ā both over-the-counter (OTC) and exchange traded ā are permitted only for the purpose of hedging of exposure to foreign exchange rate risks.
The RBI said that for the purpose of ease of doing business, a circular dated June 20, 2014, permitted users of ETCDs to take positions up to $10 million per exchange without having to provide documentary evidence to establish the underlying exposure but did not provide any exemption from the requirement of having the exposure.
Accordingly, users are expected to ensure compliance with the requirement of having underlying exposure.
The limit of $10 million per exchange was subsequently amended and currently stands at a single limit of $100 million combined across all exchanges.
As announced in the Statement on Developmental and Regulatory Policies dated December 8, 2023, the regulatory framework governing the hedging of foreign exchange risks was comprehensively reviewed in 2020 with a view to ushering in a principle-based regime.