Currency futures trading received a boost on Monday after the Reserve Bank of India raised the position limit for trading in currency derivatives on stock exchanges, for both resident and non-resident Indians, to $100 million across all currency pairs involving the rupee.
Currently, domestic investors and foreign portfolio investors (FPIs) are allowed to take a long (bought) or short (sold) position in USD-INR up to $15 million per exchange without having to establish existence of underlying exposure. In addition, residents and FPIs are allowed to take long or short positions in EUR-INR, GBP-INR and JPY-INR pairs, all put together, up to $5 million equivalent per exchange without having to establish existence of any underlying exposure.
Offshore destinations like the DGCX of Dubai and SGX of Singapore had emerged as the top rivals to domestic exchanges for trading in the Indian rupee. Tax and other statutory costs for trading in the DGCX and the SGX are much lower than in India, making them hot destinations to trade Indian assets, including currency and stocks.
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Experts said the RBI’s latest move will add some lustre to Indian exchanges, which have less leverage compared to offshore destinations due to tax arbitrage.
RBI has allowed positions (long or short), without having to establish existence of underlying exposure, up to a single limit of $100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges.
“The onus of complying with the provisions of this circular rests with the participant in the ETCD (exchange traded currency derivatives) market and, in case of any contravention, the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc issued thereunder. These limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Reserve Bank of India,” the RBI said in a statement.
Experts said enhanced position limits may make hedging in currency segment easier and bring more volumes.
