RBI

Risk Management and Inter-bank Dealings: Revised Guidelines relating to participation of Residents in the Exchange Traded Currency Derivatives (ETCD) market

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Atten­tion of Autho­rized Deal­ers Cat­e­go­ry – I (AD Cat­e­go­ry – I) banks is invit­ed to the For­eign Exchange Man­age­ment (For­eign Exchange Deriv­a­tive Con­tracts) Reg­u­la­tions, 2000 dat­ed May 3, 2000 (Noti­fi­ca­tion No. FEMA. 25/RB-2000 dat­ed May 3, 2000), as amend­ed from time to time and A.P. (DIR Series) Cir­cu­lar No. 147 dat­ed June 20, 2014 relat­ing to par­tic­i­pa­tion of res­i­dents in the ETCD market.

Increase in posi­tion lim­its not requir­ing estab­lish­ment of under­ly­ing exposure

  1. Present­ly, domes­tic par­tic­i­pants are allowed to take a long (bought) as well as short (sold) posi­tion upto USD 10 mil­lion per exchange. As a mea­sure of fur­ther lib­er­al­i­sa­tion, it has now been decid­ed to increase the lim­it (long as well as short) in USD-INR pair upto USD 15 mil­lion per exchange. In addi­tion, domes­tic par­tic­i­pants shall be allowed to take long as well as short posi­tions in EUR-INR, GBP-INR and JPY-INR pairs, all put togeth­er, upto USD 5 mil­lion equiv­a­lent per exchange. These lim­its shall be mon­i­tored by the exchanges and breach­es, if any, may be report­ed. For the con­ve­nience of mon­i­tor­ing, exchanges may pre­scribe fixed lim­its for the con­tracts in cur­ren­cies oth­er than USD such that these lim­its are with­in the equiv­a­lent of USD 5 million.

Ratio­nal­i­sa­tion of doc­u­men­ta­tion require­ments for both Importers and Exporters

  1. At present, in terms of para­graphs (2) (b) (iii) and (2) (b) (v) respec­tive­ly, of the above cir­cu­lar, mar­ket par­tic­i­pants have to pro­duce a cer­tifi­cate from the statu­to­ry audi­tors as indi­cat­ed there­in. As a mea­sure of lib­er­al­i­sa­tion in the ETCD mar­ket, it has now been decid­ed that, instead of the statu­to­ry auditor’s cer­tifi­cate, a signed under­tak­ing to the same effect from the Chief Finan­cial Offi­cer (CFO) or the senior most func­tionary respon­si­ble for com­pa­ny’s finance and accounts and the Com­pa­ny Sec­re­tary (CS) may be pro­duced. In the absence of a CS, the Chief Exec­u­tive Offi­cer (CEO) or the Chief Oper­at­ing Offi­cer (COO) shall co-sign the under­tak­ing along with the CFO.

Increase in eli­gi­ble lim­it for Importers hedg­ing con­tract­ed exposure

  1. At present, importers are per­mit­ted to hedge their con­tract­ed expo­sures in the ETCD mar­ket upto 50 per cent of their eli­gi­ble lim­it as defined in para (2)(b)(i) of the above cir­cu­lar. With a view to bring­ing at par both exporters and importers, it has now been decid­ed to allow importers to take appro­pri­ate hedg­ing posi­tions up to 100 per cent of the eli­gi­ble limit.
  2. All oth­er oper­a­tional guide­lines, terms and con­di­tions includ­ing the require­ment of certificate(s) from the Statu­to­ry Audi­tor regard­ing the eli­gi­ble lim­it up to which domes­tic par­tic­i­pants can take appro­pri­ate hedg­ing posi­tions in the ETCD mar­ket and the nec­es­sary under­tak­ing from the CFO or senior most func­tionary respon­si­ble for com­pa­ny’s finance and accounts as indi­cat­ed in para (2)(b)(ii) of the above cir­cu­lar remain unchanged.
  3. A matrix indi­cat­ing the exist­ing and the revised posi­tions is enclosed for easy reference.
  4. This cir­cu­lar has been issued under Sec­tions 10 (4) and 11(1) of the For­eign Exchange Man­age­ment Act, 1999 (42 of 1999) and is with­out prej­u­dice to per­mis­sions / approvals, if any, required under any oth­er law.

Yours faith­ful­ly

(R Sub­ra­man­ian)
Chief Gen­er­al Manager

Encls: As above

Annex to A.P. (DIR Series) Cir­cu­lar No. 90 dat­ed March 31, 2015

Para­graph no. Exist­ing pro­vi­sion in terms of A.P. (DIR Series) No. 147 dat­ed June 20, 2014 Amend­ed pro­vi­sion in terms of A.P. (DIR Series) Cir­cu­lar No. ____ dat­ed March 31, 2015
(2)(a)

Domes­tic par­tic­i­pants shall be allowed to take a long (bought) as well as short (sold) posi­tion upto USD 10 mil­lion per exchange.

Domes­tic par­tic­i­pants shall be allowed to take a long (bought) as well as short (sold) posi­tion in USD-INR pair upto USD 15 mil­lion per exchange. In addi­tion, par­tic­i­pants shall be allowed to take long as well as short posi­tions in EUR-INR, GBP-INR and JPY-INR pairs, all put togeth­er, upto USD 5 mil­lion equiv­a­lent per exchange. These lim­its shall be mon­i­tored by the exchanges and breach­es, if any, may be reported.
(2) (b) (i)

For par­tic­i­pants who are exporters or importers of goods and ser­vices, the eli­gi­ble lim­it up to which they can take appro­pri­ate hedg­ing posi­tions in ETCDs will be deter­mined as(a) high­er of the (I) aver­age of the last three years’ export turnover, or (II) pre­vi­ous year’s export turnover, in case they are exporters and (b) fifty per cent of the high­er of the (I) aver­age of their last three years’ imports turnover or (II) the pre­vi­ous year’s turnover, in case they are importers.

For par­tic­i­pants who are exporters or importers of goods and ser­vices, the eli­gi­ble lim­it up to which they can take appro­pri­ate hedg­ing posi­tions in ETCDs will be deter­mined ashigh­er of the (I) aver­age of the last three years’ export or import turnover, or (II) pre­vi­ous year’s export or import turnover
(2) (b) (iii)

Based on the above cer­tifi­cate, a trad­ing mem­ber can book ETCD con­tracts upto fifty per cent of the eli­gi­ble lim­it [as at para­graph (2)(b)(i)] on behalf of the con­cerned cus­tomer. If a par­tic­i­pant wish­es to take posi­tion beyond the fifty per cent of the eli­gi­ble lim­it in the ETCD, it has to pro­duce a cer­tifi­cate from the statu­to­ry audi­tors cer­ti­fy­ing that the sum total of the out­stand­ing OTC deriv­a­tive con­tracts and out­stand­ing ETCD con­tracts has gen­er­al­ly been in cor­re­spon­dence with the eli­gi­ble limits.

Based on the above cer­tifi­cate, a trad­ing mem­ber can book ETCD con­tracts upto fifty per cent of the eli­gi­ble lim­it [as at para­graph (2)(b)(i)] on behalf of the con­cerned cus­tomer. If a par­tic­i­pant wish­es to take posi­tion beyond the fifty per cent of the eli­gi­ble lim­it in the ETCD, it has to pro­duce a signed under­tak­ing from the Chief Finan­cial Offi­cer (CFO) or the senior most func­tionary respon­si­ble for com­pa­ny’s finance and accounts and the Com­pa­ny Sec­re­tary (CS) to the effectthat the sum total of the out­stand­ing OTC deriv­a­tive con­tracts and out­stand­ing ETCD con­tracts has been in cor­re­spon­dence with the eli­gi­ble lim­its. In the absence of a CS, the Chief Exec­u­tive Offi­cer (CEO) or the Chief Oper­at­ing Offi­cer (COO) shall co-sign the under­tak­ing along with the CFO or the senior most func­tionary respon­si­ble for com­pa­ny’s finance and accounts.
(2) (b) (v)

All par­tic­i­pants in the ETCD mar­ket, except those cov­ered by para­graph (2)(b)(iv), will be required to sub­mit to the con­cerned trad­ing mem­ber of the exchange a half-year­ly cer­tifi­cate from their statu­to­ry audi­tors as on March 31st and Sep­tem­ber 30th, with­in fif­teen days from the said dates, to the effect that dur­ing the pre­ced­ing six months, the deriv­a­tive con­tracts entered into by the par­tic­i­pant in the OTC and the ETCD mar­kets put togeth­er did not exceed the actu­al exposure.

All par­tic­i­pants in the ETCD mar­ket, except those cov­ered by para­graph (2)(b)(iv), will be required to sub­mit to the con­cerned trad­ing mem­ber of the exchange a half-year­ly asigned under­tak­ing from the Chief Finan­cial Offi­cer (CFO) or the senior most func­tionary respon­si­ble for com­pa­ny’s finance and accounts and the Com­pa­ny Sec­re­tary (CS) as on March 31st and Sep­tem­ber 30th, with­in fif­teen days from the said dates, to the effect that dur­ing the pre­ced­ing six months, the deriv­a­tive con­tracts entered into by the par­tic­i­pant in the OTC and the ETCD mar­kets put togeth­er did not exceed the actu­al expo­sure. In the absence of a CS, the Chief Exec­u­tive Offi­cer (CEO) or the Chief Oper­at­ing Offi­cer (COO) shall co-sign the under­tak­ing along with the CFO or the senior most func­tionary respon­si­ble for com­pa­ny’s finance and accounts.

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