RBI/ 2013-14/650
A .P. (DIR Series) Circular No. 148
June 20, 2014
To
All Category - I Authorised Dealer banks
Madam / Sir,
Risk Management and Inter-bank Dealings: Guidelines relating to
participation of Foreign Portfolio Investors (FPIs) in the Exchange Traded
Currency Derivatives (ETCD) market
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, the Currency
Futures (Reserve Bank) Directions, 2008 dated August 6, 2008 and Exchange Traded
Currency Options (Reserve Bank) Directions, 2010 dated July 30, 2010 as amended
from time to time and also
A.P. (Dir Series) circular No.5 dated August 6, 2008
and
circular No.5 dated July 30, 2010 in terms of which only persons resident in
India shall participate in the currency futures and exchange traded currency
options market in India subject to the terms and conditions mentioned in the
aforementioned notifications and guidelines, ibid.
- It has now been decided to allow foreign portfolio investors (FPIs)
eligible to invest in securities as laid down in Schedules 2, 5, 7 and 8 of the
Foreign Exchange Management (Transfer or Issue of Security by a person resident
outside India) Regulations, 2000 (FEMA 20/2000-RB dated May 3, 2000 (GSR 406 (E)
dated May 3, 2000)) as amended from time to time to enter into currency futures
or exchange traded currency options contracts subject to the following terms and
conditions:
- FPIs will be allowed access to the currency futures or exchange traded currency
options for the purpose of hedging the currency risk arising out of the market
value of their exposure to Indian debt and equity securities.
- Such investors can participate in the currency futures / exchange traded options
market through any registered / recognised trading member of the exchange
concerned.
- FPIs can take position – both long( bought) as well as short(sold) – in foreign
currency up to USD 10 million or equivalent per exchange without having to
establish existence of any underlying exposure. The limit will be both day-end
as well as intra-day.
- An FPI cannot take a short position beyond USD 10 million at any time and to
take a long position beyond USD 10 million in any exchange, it will be required
to have an underlying exposure. The onus of ensuring the existence of an
underlying exposure shall rest with the FPI concerned.
- The exchange will, however, be free to impose additional restrictions as
prescribed by the Securities and Exchange Board of India (SEBI) for the purpose
of risk management and fair trading.
- The exchange/ clearing corporation will provide FPI wise information on day-end
open position as well as intra-day highest position to the respective custodian
banks. The custodian banks will aggregate the position of each FPI on the
exchanges as well as the OTC contracts booked with them (i.e. the custodian
banks) and other AD banks. If the total value of the contracts exceeds the
market value of the holdings on any day, the concerned FPI shall be liable to
such penal action as may be laid down by the SEBI in this regard and action as
may be taken by Reserve Bank of India under the Foreign Exchange Management Act
(FEMA), 1999. The designated custodian bank will be required to monitor this and
bring transgressions, if any, to the notice of RBI / SEBI.
- Accordingly, the Notifications No.FED.1 / ED (GP) - 2014 dated June 10, 2014
and No. FED. 2/ ED (GP) – 2014 dated June 10, 2014 viz. Currency Futures
(Reserve Bank) Amendment Directions, 2014 and Exchange Traded Currency Options
(Reserve Bank) Amendment Directions, 2014 amending the Directions notified vide
Notification No.FED.1/DG (SG) – 2008 dated August 6, 2008 and Notification No.
FED.1 / ED (HRK) - 2010 dated July 30, 2010 respectively have been issued.
Copies of the Directions are enclosed (Annexes I & II).
- Necessary amendments (Notification No. FEMA 303/2014-RB dated May 21, 2014)
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. 374(E)
dated June 2, 2014, a copy of which is also enclosed (Annex III).
- The above directions have been issued under section 45W of the Reserve Bank
of India Act, 1934 and the regulations have been issued under clause (h) of
sub-Section (2) of Section 47 of FEMA, 1999 (42 of 1999).
- 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,
(C D Srinivasan)
Chief General Manager