Revision of limits relating to requirement of underlying exposure for currency derivatives contracts
Summary
This circular revises the limits for establishing underlying exposure in currency derivatives contracts based on RBI guidelines. It sets a USD 100 million limit for domestic clients and FPIs to take positions without proof of underlying exposure across all INR-involved currency pairs. The document outlines specific restrictions for FPI short positions and mandates monitoring by stock exchanges and clearing corporations.
Text
Domestic clients / Foreign Portfolio Investors (FPIs) may take long or short positions without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent, across all currency pairs involving INR, put together, and combined across all the stock exchanges.
FPIs shall ensure that their short positions at all stock exchanges across all contracts in FCY-INR pairs do not exceed USD 100 million.
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 excess of USD 100 million in all contracts in FCY-INR pairs, FPIs shall be required to have an underlying exposure in Indian debt or equity securities, including units of equity/debt mutual funds.
Domestic clients may take positions in excess of USD 100 million in in all contracts in FCY-INR pairs, subject to the conditions specified in the RBI A.P. (DIR Series) Circular no. 147 dated June 20, 2014 and RBI A.P. (DIR Series) Circular no. 90 dated March 31, 2015.
The onus of complying with the provisions of the RBI A.P. (DIR Series) Circular no. 18 dated February 26, 2018 shall rest with the client / FPI... These limits shall be monitored by stock exchanges and/or clearing corporations and breaches, if any, shall be reported to the Market Surveillance Team of Financial Markets Regulation Department (FMRD), RBI.
take necessary steps to put in place systems for implementation of the circular, including necessary amendments to the relevant bye-laws, rules and regulations;
bring the provisions of this circular to the notice of the stock brokers / clearing members and also disseminate the same on their website;
communicate to SEBI the status of implementation of the provisions of this circular.
This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Revision of limits relating to requirement of underlying exposure for currency derivatives contracts. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.