Query on Currency derivatives trading post 04 April 2024 in view of RBI circular dated 05 Jan 2024

Recently, I came across a circular issued by the Reserve Bank of India (RBI) on January 5th, 2024. The circular discusses a proposal to restrict currency derivatives trading involving INR if there does not exist an underlying equivalent exposure :

RBI Circular Link: [RBI Circular]

Furthermore, I stumbled upon a Reuters article that delves deeper into the implications of this circular:

I believe members here can give more insights and clarity on the impacts of the circular.

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Hi @adityasingh.as27,

We are seeking clarity on this from our legal counsels. The present understanding we have is monitoring this will work similar to the position limits in the currency segment:

Although brokers need to monitor this today, the RBI circular makes mention of the 100 million USD equivalent limit being relaxed in case of a hedging requirement. Once we know more, I’ll share here.

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Hi @mohitmehra,
Thanks for your answer.
But in RBI Circular and reuters article (mentioned in post) one large broker has explicitly commented ‘The way we read this is that no matter the size of the position, you need an underlying exposure’.
So could you clarify if there is no change from RBI side can we still trade or not in currency deriative segment if we don’t have any underlying exposure to hedge.

Thanks for your help.

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Hi @mohitmehra is there any update on this from the broker’s side?

Seems it is getting more and more real.

https://www.ndtvprofit.com/markets/exchange-traded-fx-derivatives-may-be-hit-by-new-rbi-regulation

We have spoken to the exchange and are waiting on communication from their end. This might be in the form of a circular. Once its out, will share it here.

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The Exchanges should issue clarification on this soon, we’re in touch with them and are awaiting the same. There have been some inter regulatory meetings involving broker forums, MIIs, SEBI, RBI over the weekend. RBI seems to be insisting that traders have underlying exposure to currency if they wish to trade in the currency derivatives segment.

Thank you @VenuMadhav . I hope common sense prevails. Technically everyone who has IT or Oil stocks in their portfolio has an indirect exposure to the exchange rate and should be allowed to hedge that risk.

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Hi @VenuMadhav @mohitmehra, any updates on this?

Hello, I just came to know about that circular. Zerodha didn’t notify early. I took the position on March in April expiry. Suddenly saw a massive premium spike in OTM and ATM option strikes. Then got to know about the news .
I’m just wondering the news came in beginning of march (25days) I just came to know about this . Ek TWEET krdete bhai . And you guys didn’t able resolve the issue since 25 days such a irresponsible people you are. Ek baar bata dete

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We want an update fast. currency options are going for a toss with crazy volatility. @VenuMadhav , @mohitmehra

From what we’ve gathered from various discussions, trading will only be available for client with underlying currency exposure. Clients will have to provide an undertaking to this effect. In the event that clients do not provide, we will have to resort to closing positions.

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will you atleast allow clients to sq off on their terms? I have some May month positions, whose premiums have shot up and unfavorable to exit now

You can square off your position before April 04, or provide a declaration that you have exposure to the currency based on which you’ll be allowed to carry forward positions as per your wish.

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I do have exposure. How to give the declaration? Dont ask me to visit zerodha office / send a post! The way I see it (even though sounds a bit unfair), brokers knew this from Jan 5 and didnt do anything till now. Thus, clients need to be cut some slack now :slight_smile:

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The format will be shared here tomorrow - Change in eligibility to trade in currency derivatives. You can sign and scan and create a ticket from your registered login.

The circular was out for everyone to see. Not deflecting responsibility, but we’ve been in touch with the stock exchanges, who were in turn trying to seek clarification from the regulators including RBI. Even the Exchange circulars were issued only last night. Even today, the broker associations were met up with the RBI to figure an alternate since the implementation of this rule will spell the near death of the CDS segment. Sadly, nothing materialized.

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But the broker should have educated the clients on this notification.

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We had been awaiting your response on this. We cannot rely on the news or hearsay.

Thank you for stepping forward.

Can someone break it down a little for me…
I do not have any form of currency exposure however I do wish to continue trading in INR Pairs as I had until last few weeks is there any was to do that? Or am I being forced by RBI to give up trading on this Segment as a whole?
If the later is true how can I trade this segment moving ahead and what qualifies as “Exposure”

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@Chetan_Nahata I will suggest, that you just skip this segment till more clarity emerges. FEMA rules are very strict and you better not be caught in a grey area.

My guess will be that importers and exporters with signed contracts will be able to continue… But even for them the compliance will be exhausting, e.g. if they sell USDINR for July, but their payment is due for May… will they run into problems? Only time will tell.

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But what about this “Technically everyone who has IT or Oil stocks in their portfolio has an indirect exposure to the exchange rate and should be allowed to hedge that risk”. will it be allowed if someone has exposure to foreign mutual funds.