April 04, 2024
In response to recent concerns regarding participation in the exchange-traded currency derivatives (ETCD) market, The RBI stepped in to clear things up. They reminded everyone that these rules have been around for a while, and they haven't changed much.
As the regulatory landscape for ETCDs involving the Indian rupee (INR) is governed by the Foreign Exchange Management Act (FEMA), 1999, and related regulations. The regulatory framework has been reiterated in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 03, 2000 (Notification No. FEMA.25/RB-2000 dated May 03, 2000), which states that a person may enter into an ETCD contract involving the INR only for the purpose of hedging a contracted exposure.
In a bid to facilitate business operations, the RBI Circular No. 147 dated June 20, 2014, initially allowed ETCD users to assume positions up to USD 10 million per exchange without the need for documentary evidence to establish underlying exposure. However, this exemption did not waive the requirement for having the exposure itself. but now it's been bumped up to $100 million for all exchanges combined.
Originally, these new rules were supposed to go into effect on April 5, 2024. However, after listening to feedback and considering recent developments, the RBI has decided to push the start date back to May 03, 2024. This gives everyone a bit more time to get prepare
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