SEBI eases trading requirement in currency derivatives segment

With an aim to ease trading requirements in the currency derivatives segment, markets regulator SEBI on June 22 said position limit linked to open interest will be applicable at the time of opening a position.

Such positions will not be required to be unwound in the event of a drop of total open interest in a currency pair at the stock exchange, the Securities and Exchange Board of India (SEBI) said in a circular.

However, in such scenario, the eligible market participants will not be allowed to increase their existing positions or create new positions in the currency pair till they comply with the applicable position limits.

In view of risk management or surveillance concerns with regard to such positions of the market participants, SEBI said stock exchanges may direct the market participants to bring down their positions to comply with the applicable position limits within the time period prescribed by the bourse.

Currency derivatives are Future and Options contracts which an investor can buy or sell specific quantity of a particular currency pair at a future date. It is similar to the Stock Futures and Options but the underlying happens to be currency pair instead of stocks.

It allow allow investors to hedge against foreign exchange risk.

The regulator has directed stock exchanges and clearing corporations to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations.