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RBI/2016-17/221
A.P. (DIR Series) Circular No. 30
February 2nd, 2017
To
All Category – I Authorised Dealer Banks
Madam / Sir,
Risk Management and Inter-bank Dealings: Permitting Non Resident Indians (NRIs) access to Exchange Traded Currency Derivatives (ETCD) market
Attention of Authorised 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) issued under clause (h) of sub-section (2) of
Section 47 of FEMA, 1999 (Act 42 of 1999), as amended from time to time and
Master Direction on Risk Management and Inter-Bank Dealings dated July 5, 2016,
as amended from time to time.
2. Currently NRIs are permitted to hedge their Rupee currency risk through OTC
transactions with AD banks. With a view to enable additional hedging products
for NRIs to hedge their investments in India, it has been decided to allow them
access to the exchange traded currency derivatives market to hedge the currency
risk arising out of their investments in India under FEMA, 1999. An announcement
to this effect was made in the Monetary Policy Statement on April 5, 2016.
3. NRIs may access the ETCD market as per the following terms and conditions:
- NRIs shall designate an AD Cat-I bank for the purpose of monitoring and
reporting their combined positions in the OTC and ETCD segments.
- NRIs may take positions in the currency futures / exchange traded options market
to hedge the currency risk on the market value of their permissible (under FEMA,
1999) Rupee investments in debt and equity and dividend due and balances held in
NRE accounts.
- The exchange/ clearing corporation will provide details of all transactions of
the NRI to the designated bank.
- The designated bank will consolidate the positions of the NRI on the exchanges
as well as the OTC derivative contracts booked with them and with other AD
banks. The designated bank shall monitor the aggregate positions and ensure the
existence of underlying Rupee currency risk and bring transgressions, if any, to
the notice of RBI / SEBI.
- The onus of ensuring the existence of the underlying exposure shall rest with
the NRI concerned. If the magnitude of exposure through the hedge transactions
exceeds the magnitude of underlying exposure, the concerned NRI shall be liable
to such penal action as may be taken by Reserve Bank of India under the Foreign
Exchange Management Act (FEMA), 1999.
4. Necessary amendments (Notification No. FEMA 378/2016-RB dated October 25,
2016) to Foreign Exchange Management (Foreign Exchange Derivatives Contracts)
Regulations, 2000 (Notification No. FEMA.25/RB-2000 dated May 3, 2000)
(Regulations) have been notified in the Official Gazette vide G.S.R. No. 1005 (E)
dated October 25, 2016 a copy of which is given in the Annex I to this circular.
These regulations have been issued under clause (h) of sub-section (2) of
Section 47 of FEMA, 1999 (42 of 1999).
5. The Notifications No. FMRD.13 / CGM (TRS) dated February 2, 2017 and No.
FMRD. 14/CGM (TRS) – 2017 dated February 2, 2017 viz., Currency Futures (Reserve
Bank) (Amendment) Directions, 2017 and Exchange Traded Currency Options (Reserve
Bank) (Amendment) Directions, 2017 amending the Directions notified vide
Notifications No. FED.1 / DG (SG) – 2008 dated August 6, 2008 and Notifications
No. FED. 1/ ED (HRK) – 2010 dated July 30, 2010 respectively have been issued.
Copies of the Directions are enclosed (Annexes II & III). These Directions have
been issued under Section 45W of the Reserve Bank of India Act, 1934.
6. 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
permission / approvals, if any, required under any other law.
Yours faithfully,
(T Rabi Sankar)
Chief General Manager
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