RBI deepens exchange-traded currency derivatives market


Mumbai, Feb 27: The Reserve Bank of India (RBI) on Monday permitted domestic and foreign investors to take larger positions in the exchange-traded currency derivatives (ETCD) market, revising the exposure limit upwards to $100 million.

Announcing its final bi-monthly monetary policy review of the fiscal earlier this month, the RBI had said it intended to raise the position limits.

"It has now been decided to permit persons residing in India and FPIs (foreign portfolio investors) to take positions (long or short), without having to establish existence of underlying exposure, up to a single limit of $100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges," an RBI notification said.

This includes dollar-rupee, euro-rupee, pound sterling-rupee and yen-rupee pairs.

Market players were earlier allowed to take long or short positions up to a limit of $15 million in the dollar-rupee pair without underlying exposure. 

The combined limit for other cross currency pairs was at $5 million, which has now been revised upwards to $100 million.

The central bank said the onus of complying with the revised provisions rests with the ETCD market participant, and in case of any contravention the "participant shall be liable to any action as per provisions of the Foreign Exchange Management Act, 1999".

"These limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Reserve Bank of India."

The Bombay Stock Exchange (BSE) said last week that it had received approval from the market regulator Securities and Exchange Board of India (SEBI) to trade in multiple cross-currency derivatives with effect from February 28.

The stock exchange said it has also received permission to introduce options on euro-rupee, pound sterling-rupee and Japanese yen-rupee, in addition to the existing dollar-rupee options.