MANU/RPRL/0217/2024

Ministry : Reserve Bank of India

Department/Board : Press Release

Press Release No. : 2024-2025/32

Date : 04.04.2024

Notification/ Circulars Referred : A.P. (DIR Series) Circular No. 13 dated January 05, 2024 MANU/APDR/0001/2024;Notification No. FEMA.25/RB-2000 dated May 03, 2000 MANU/RFEM/0017/2000; A.P. (DIR Series) Circular No. 147 dated June 20, 2014 MANU/APDR/0066/2014;Statement on Developmental and Regulatory Policies dated December 08, 2023 MANU/RPRL/0760/2023

Subject: Banking

Citing Reference:
A.P. (DIR Series) Circular No. 13 dated January 05, 2024 MANU/APDR/0001/2024  Referred

Notification No. FEMA.25/RB-2000 dated May 03, 2000 MANU/RFEM/0017/2000  Referred

A.P. (DIR Series) Circular No. 147 dated June 20, 2014 MANU/APDR/0066/2014  Referred

Statement on Developmental and Regulatory Policies dated December 08, 2023 MANU/RPRL/0760/2023  Referred

Notification regarding Exchange Traded Currency Derivatives

In the recent period, some concerns have been expressed about participation in the exchange traded currency derivatives (ETCD) market in the light of the Reserve Bank of India's (RBI) A.P. (DIR Series) Circular No. 13 dated January 05, 2024.

It may be noted that the regulatory framework for participation in ETCDs involving the Indian rupee (INR) is guided by the provisions of the Foreign Exchange Management Act (FEMA), 1999 and regulations framed thereunder which mandate that currency derivative contracts involving the INR-both over-the-counter (OTC) and exchange traded-are permitted only for the purpose of hedging of exposure to foreign exchange rate risks. The regulatory framework has been reiterated in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 03, 2000 (Notification No. FEMA.25/RB-2000 dated May 03, 2000) amended on February 18, 2020 which states that a person may enter into an ETCD contract involving the INR only for the purpose of hedging a contracted exposure.

For the purpose of ease of doing business, the RBI's A.P. (DIR Series) Circular No. 147 dated June 20, 2014 permitted users of ETCDs to take positions up to USD 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 USD 10 million per exchange was subsequently amended and currently stands at a single limit of USD 100 million combined across all exchanges.

As announced in the