No change in policy on exchange traded currency derivatives, says RBI Governor | Business News

“There has been no change in the RBI’s policy (on ETCD market). This policy of the need to have an underlying has always been a part of the RBI’s policy for the last many years. This (need for underlying exposure for ETCD contracts) has been a consistent position,” the Governor told reporters after announcing the monetary policy review.

“It is the legal requirement under the FEMA (Foreign Exchange Management Act) regulation. So where is the question of review of that..it’s been there for the last so many years,” Das said when asked if the RBI may consider any review of the regulations in the ETCD market.

On January 5, 2024, the RBI issued a master circular on hedging foreign exchange risks, which allowed users to take positions (long or short) in the foreign exchange derivatives market, without having to establish the existence of underlying exposure, up to a single limit of $100 million equivalent across all currency pairs involving the rupee.

However, the regulator asked stock exchanges to inform users that while they are not required to establish the existence of underlying exposure, they must ensure the existence of a valid underlying contracted exposure which has not been hedged using any other derivative contract and should be in a position to establish the same when required. The new norms were earlier planned to be implemented from April 5.

RBI Deputy Governor Michael Patra said the January 5th master direction was a reiteration of the earlier policies and there was no change in approach. He said ETCDs are meant for hedging purposes and underlying exposure is mandatory.

“Some market participants have been misusing this to understand that a relaxation in the documentary evidence is tantamount to no underlying… and that is a violation of the law,” Patra said.