RBI defers new norms for FX derivatives to May 3

Mumbai: The Reserve Bank of India (RBI) on Thursday deferred the deadline to implement new rules for exchange-traded currency derivatives (ETCD) to May 3, a move that would help ease the panic seen in the forex markets. The new rules were supposed to kick in from Friday.

“In view of feedback received and recent developments, it has been decided that these directions will now come into effect from Friday, May 03, 2024," RBI said.

Under RBI’s January 5 circular that would have come into effect on April 5, proprietary traders and retail investors are required to demonstrate contracted or prospective currency exposure to participate in the currency derivatives segments provided by exchanges such as the NSE and the BSE.

On Thursday, RBI said that the regulatory framework for participation in exchange-traded currency derivatives (ETCDs) involving the rupee is guided by the provisions of the Foreign Exchange Management Act (FEMA). Under the guidelines, currency derivative contracts involving the rupee – both over-the-counter (OTC) and exchange-traded – are allowed only for hedging of exposure to foreign exchange rate  risks.

The Indian rupee's exchange-traded options were in a panic over the last two days after brokers asked clients to submit proof of underlying exposure on their derivative contracts or unwind their existing positions. Forex experts said that the central bank is providing an extension so that participants have the time to close out their positions.