Risk Management and Inter-bank Dealings: Guidelines relating to participation of Residents in the Exchange Traded Currency Derivatives (ETCD) market - आरबीआय - Reserve Bank of India
Risk Management and Inter-bank Dealings: Guidelines relating to participation of Residents in the Exchange Traded Currency Derivatives (ETCD) market
RBI/2013-14/649 June 20, 2014 To Madam / Sir, Risk Management and Inter-bank Dealings: Guidelines relating to participation of Residents in the Exchange Traded Currency Derivatives (ETCD) market Attention of Authorized Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 (Notification No. FEMA. 25/RB-2000 dated May 3, 2000), as amended from time to time, the Currency Futures (Reserve Bank) Directions, 2008 dated August 6, 2008 and Exchange Traded Currency Options (Reserve Bank) Directions, 2010 dated July 30, 2010 as amended from time to time and also AP (Dir Series) circular No.5 dated August 6, 2008 and No.5 dated July 30, 2010 in terms of which persons resident in India may participate in the ETCD market in India subject to the terms and conditions mentioned in the aforementioned notifications and guidelines, ibid. Attention is also drawn to A.P. (DIR Series) circular No. 86 dated March 1, 2013 and A.P. (DIR Series) circular no. 7 dated July 8, 2013 in terms of which restrictions on the proprietary trading by AD Category – I banks in the currency futures and ETCD markets were imposed. 2. In terms of the present regulatory framework, domestic participants in the currency futures and exchange traded options markets are not required to have any underlying exposure while requirement of underlying is mandatory for taking a position in the over-the-counter (OTC) derivatives markets. With a view to bringing about an alignment between the two markets, henceforth domestic participants in the currency futures and exchange traded currency options will be subject to the following terms and conditions: a. Domestic participants shall be allowed to take a long (bought) as well as short (sold) position upto USD 10 million per exchange without having to establish the existence of any underlying exposure. For the purpose of convenience, exchanges may prescribe a fixed limit for the contracts in currencies other than USD such that the limit is within the equivalent of USD 10 million. b. Domestic participants who want to take a position exceeding USD 10 million in the ETCD market will have to establish the existence of an underlying exposure. The procedure for the same shall be as under:
c. It may be noted that the onus of complying with the provisions of this circular rests with the participant and in case of any contravention the participant shall render itself liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and those of the Regulations, Directions, etc. framed thereunder. 3. In terms of A.P. (DIR Series) Circular 86 dated March 1, 2013, AD Cat-I banks were not allowed to offset their positions in the ETCD market against the positions in the OTC derivatives market and in terms of A.P. (DIR Series) Circular No. 7 dated July 8, 2013 they were not allowed to carry out any proprietary trading in the ETCD market. Keeping in view the evolving market conditions, it has now been decided that:
4. Save and except as mentioned above, there will be no other upper limit on the position that can be taken by any participant, resident or non-resident, in the ETCD market. The exchanges under appropriate directions from SEBI may however impose any limit for risk management and preserving market integrity. 5. This circular has been issued under Sections 10 (4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (C D Srinivasan) |