Participation of FPIs in the Currency Derivatives segment and Position limits for currency derivatives contracts
Summary
This circular permits Foreign Portfolio Investors (FPIs) and domestic clients to participate in the exchange-traded currency derivatives segment subject to specific position limits. It establishes distinct exposure thresholds for long and short positions, requiring underlying Indian securities exposure for FPIs exceeding USD 10 million or equivalent. The document mandates monitoring mechanisms involving clearing corporations and custodians while directing stock exchanges to implement compliance systems by June 27, 2014.
Text
FPIs are permitted to trade in the currency derivatives segment of stock exchanges, subject to terms and conditions mentioned in this circular and aforesaid RBI circular.
Appropriate mechanisms are implemented to prevent participation in Exchange Traded Currency Derivatives of “persons resident outside India”, as defined in Section 2(w) of the Foreign Exchange Management Act, 1999, except persons allowed under regulation 5B of Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2014.
FPIs may take long as well as short positions in the permitted currency pairs upto USD 10 million / EUR 5 million / GBP 5 million / JPY 200 million, as applicable, per stock exchange without having to establish the existence of any underlying exposure.
FPIs shall ensure that their short positions at a stock exchange across all contracts in a permitted currency pair do not exceed USD 10 million / EUR 5 million / GBP 5 million / JPY 200 million, as applicable. In the event a FPI breaches the short position limit, stock exchanges shall restrict the FPI from increasing its existing short positions or creating new short positions in the currency pair till such time FPI complies with the said requirement.
To take long positions in the permitted currency pair in excess of USD 10 million / EUR 5 million / GBP 5 million / JPY 200 million, as applicable, FPIs shall be required to have an underlying exposure in Indian debt or equity securities, including units of equity/debt mutual funds.
Primary onus for ensuring compliance with the above provisions shall rest with the FPI.
The clearing corporation shall provide details on the FPI’s day-end and day’s highest open positions at end of day to the custodians of securities of the FPI.
The custodian of securities of the FPI shall aggregate the positions taken by the FPI on the currency derivatives segments of all the stock exchanges and forward such details to the designated bank of the FPI... The custodian of securities of the FPI shall also provide the market value of applicable underlying exposure of the FPI to the designated bank of the FPI.
Domestic clients may take long or short positions in the permitted currency pairs upto USD 10 million / EUR 5 million / GBP 5 million / JPY 200 million, as applicable, per stock exchange without having to establish the existence of any underlying exposure.
Domestic clients may take positions in the permitted currency pairs in excess of USD 10 million / EUR 5 million / GBP 5 million / JPY 200 million, as applicable, subject to the conditions specified the RBI A.P. (DIR Series) Circular no. 147 dated June 20, 2014.
Stock brokers shall comply with the requirements mentioned in the RBI A.P. (DIR Series) Circular no. 147 dated June 20, 2014 while dealing with domestic clients and shall bring to the notice of their clients the requirements specified in this circular and the aforementioned RBI circular.
The primary onus of complying with the relevant provisions of the RBI A.P. (DIR Series) Circular no. 147 dated June 20, 2014 shall rest with the client and in case of any contravention, the client shall render itself liable to any action that may be warranted by RBI as per the provisions of Foreign Exchange Management Act, 1999 and Regulations, Directions, etc. framed thereunder.
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Source: SecMarx — Participation of FPIs in the Currency Derivatives segment and Position limits for currency derivatives contracts. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.