RBI consolidates norms of Currency Futures, Exchange Traded Currency Options in one direction

According to the directions, for OTC foreign exchange transactions, authorised dealers shall classify users as retail or non-retail to offer foreign exchange derivative contracts and foreign currency interest rate derivative contracts

The Reserve Bank of India (RBI) said it has consolidated norms on Currency Futures and Exchange Traded Currency Options and released a single master direction on Risk Management and Interbank Dealings on January 5.

These directions shall come into effect from April 5, a release from the central bank said.

In its December monetary policy, the RBI said that it will review the regulatory framework for hedging foreign exchange risks. This will also ensure that a broader set of customers with the necessary risk management expertise are given the flexibility to manage their exposures efficiently, RBI said.

According to the directions, for OTC foreign exchange transactions, authorised dealers shall classify users as retail or non-retail to offer foreign exchange derivative contracts and foreign currency interest rate derivative contracts.

Any user, who is otherwise eligible to be classified as a retail user shall have the option to get classified as a non-retail user subject to the condition that the user requests an authorised dealer, the directions said.

Authorised dealers may offer foreign exchange cash, foreign exchange tom, and foreign exchange spot. These can be offered to both retail and non-retail users.

Authorised dealers may offer deliverable foreign exchange derivative contracts involving INR to users for hedging.

In foreign exchange derivative contracts, authorised dealers may offer foreign exchange forward, foreign exchange swap, currency swap, purchase of foreign exchange call option (European), purchase of foreign exchange put option (European), purchase of foreign exchange call spread, and purchase of foreign exchange put spread.

NDDCs involving INR can be offered to residents and non-residents by an Authorised Dealer Category-I bank, provided the Authorised Dealer Category-I bank (or its non-resident parent bank) has an operating International Financial Services Centre (IFSC) Banking Unit (IBU), directions said.

While offering a foreign exchange derivative contract involving INR to a user, other than NDDCs involving INR offered to non-resident users, and during the life of such contracts, Authorised Dealers ensure that the same exposure has not been hedged using any other derivative contract.

Further, the notional amount and tenor of the derivative contract do not exceed the value and tenor of the exposure.