The circular says contracted underlying exposure which is defined as by RBI as: An exposure to the exchange rate of Rupee against a foreign currency on account of current and capital account transactions permissible under FEMA, 1999 or any rules or regulations made thereunder, which have already been entered into.
May 82.75 PE went to 21, what’s the use of circuit limit then?
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I also have same question. I have a ESOP from US company and it is in USD. Is this good enough as exposure ?
Your company receives payments in foreign currency. But do you get payments in USD? That would be the decider question here. Also, you can ask your bank the same question as they would be aware of the day to day nuances of FEMA because they deal with this hundreds of times every day. I am doing the same too
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When you are selling a call, what are you hedging exactly? Do you have USD inflows?
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Very unfair here. All sellers of 82.75PE wouldve had liquidations by Zerodha. Coz, its impossible to satisfy such increased margin requirements.
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Yes USD Inflows from my son who is an NRI… hedging against drop in USD to INR
Not sure what you’re hinting, cos we haven’t resorted to closing positions for anyone yet. Clients may be liquidating positions on their own.
Venu, The option price went from 0.095 to 21, should’t this much volatality be restricted by circuit limits? I’m sure many people would have exited at huge losses just by seeing their MTM loss
My apologies then! Good to know a well learned broker like Zerodha is giving a chance to clients to sq off on their own terms (in a way)! Thanks.
@VenuMadhav @Sensibull
Can we buy US stocks or mutual funds who have exposure to those and then pledge them to zerodha will we be eligible then to trade this segment
The RBI circular states that any positions after 5.4.24 shall require underlying exposure, but there is no clarity on positions taken before 5.4.24.
Hence, compulsory square off should be decided only after consultation with brokers association, RBI and SEBI.
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You could have used nudge feature in kite to convey this confusion and awaiting clarification thing when someone opened fresh positions after circular was out
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You don’t need to pledge right. Just have to provide declaration, and then need to proof only if/when asked later
Lol. Not sure if you’re joking but yeah good strategy lol.
I buy domains in USD once a year so am hedging against that hehehe
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So unless I, personally, am getting USD or GBP, I cannot fill and trade in currency anymore, even if I hold 50% in partnership firm.
But is it legal or not and what about position I can just buy 10 shares of apple or 1000 rupees worth of MF who have exposure to foreign stocks will I then be able to trade let say 30L capital
Yesterday I created some positions and there were no warnings or restrictions. Today suddenly I am receiving message that I have to square off by tomorrow. What changed in one day?
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Since we are getting questions on what Contracted Exposure means, here is a short note:
RBI defines contracted exposure in the following way:
‘Contracted exposure’ means currency risk arising on account of current or capital account transactions permissible under the FEMA, 1999 or any rules or regulations made thereunder, that have been entered into.
Explanation for the purpose of the above:
(i) The term ‘exposure’ shall also include exposures arising out of transactions between residents that are denominated in a foreign currency or are linked to a foreign currency or are linked to a benchmark denominated in foreign currency, but settled in INR; and
(ii) The term ‘exposure’ shall not include exposures arising from foreign exchange derivative and foreign currency interest rate derivative transactions undertaken for purposes other than hedging.
Here is the list of permissible capital account transactions under FEMA -
a) Investment by a person resident in India in foreign securities.
b) Foreign currency loans raised in India and abroad by a person resident in India.
c) Transfer of immovable property outside India by a person resident in India.
d) Guarantees issued by a person resident in India in favour of a person resident outside India.
e) Export, import and holding of currency / currency notes.
f) Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India.
g) Maintenance of foreign currency accounts in India and outside India by a person resident in India.
h) Taking out of insurance policy by a person resident in India from an insurance company outside India.
i) Loans and overdrafts by a person resident in India to a person resident outside India.
j) Remittance outside India of capital assets of a person resident in India.
k) Undertake derivative contracts
Links - Permissible Capital Account Exposures, Definition of Contracted Exposure.
In simple words, you can trade currencies if you are directly undertaking any currency risk from contracts that foreign currency regulations allow you to undertake.
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This includes ESOPs? Also there are RSUs (Restrictive stock units). Most IT folks have them. Amazon issues these for example to employees. Are they considered as securities?
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Yesterday broker associations again met RBI on this and RBI is adamant to change anything, hence all this confusion.