The updated directives establish a single USD 5 million notional limit for outstanding long or short contracts across all rupee-linked currency pairs. While foreign portfolio investors face a hard ceiling on short positions at this threshold, they can expand long positions if backed by Indian debt, equity, or mutual fund holdings. Domestic participants exceeding the cap must comply with the central bank's inter-bank dealing and risk management master directions. Market infrastructure institutions have been instructed to modify their operating systems to enforce these revised trading parameters.
Key points
Market participants can now take currency derivative positions up to USD 5 million withou…: Market participants can now take currency derivative positions up to USD 5 million without establishing underlying exposure.
Stock exchanges and clearing corporations are required to amend internal rules and update…: Stock exchanges and clearing corporations are required to amend internal rules and update systems to enforce the framework.
Domestic participants exceeding the limit must strictly satisfy the conditions outlined i…: Domestic participants exceeding the limit must strictly satisfy the conditions outlined in the Reserve Bank of India directive.
Sources checked by our analysis pipeline: 1
In a circular on Thursday, Sebi revised norms aligned with the Reserve Bank of India's (RBI) October 10 circular, which changed the threshold for taking positions in foreign exchange derivatives involving the rupee without establishing an underlying exposure.
Under the revised framework, domestic clients and foreign portfolio investors (FPIs) can take long or short positions up to a single limit of USD 5 million equivalent of notional value (outstanding at any point), across all currency pairs involving the Indian rupee, put together, and combined across all recognised stock exchanges.
The regulator has also specified that FPIs must ensure that their short positions across all contracts in foreign currency-rupee pairs do not exceed USD 5 million.
For positions above the USD 5 million threshold, FPIs taking the long positions must have an underlying exposure in Indian debt or equity securities, including units of equity and debt mutual funds, Sebi said.
Domestic clients can take positions beyond the limit subject to conditions specified by the RBI in its master direction on Risk Management and Inter-Bank Dealings dated October 10.
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