Reserve Bank of India raises currency derivatives limit to $100 million

The Reserve Bank of India (RBI) on Monday allowed persons residing in India and foreign portfolio investors (FPIs) to take single-limit positions of up to $100 million in exchange-traded currency derivatives, without having to establish the underlying exposure. The central bank’s earlier guidelines allowed FPIs and Indian residents to take long or short positions in dollar-rupee derivatives up to $15 million per exchange, and take positions in the euro-rupee, pound-rupee and yen-rupee pairs up to $5 million equivalent per exchange, without having to establish the existence of the underlying exposure. However, the $100 million limit is the total of all transactions across exchanges and currency pairs, RBI clarified. The circular comes after the National Stock Exchange (NSE) and the BSE last week received approval from the Securities and Exchange Board of India (Sebi) to introduce cross-currency derivatives. The move is expected to improve liquidity in the system, particularly from retail investors. However, the currency futures market has also seen a lot of speculation, which indirectly influences the rupee’s spot rates.

The increase in limits would help foreign investors, who take positions in offshore markets to hedge Indian investments. There would be 12 monthly standardised futures contracts of cross-currencies. The contracts would be settled in cash and in rupees, Sebi had said last week. For options contracts, three monthly contracts followed by three quarterly ones will be launched.