RBI maintains its position on underlying exposure to forex derivatives – Finance News

The Reserve Bank of India (RBI) has clarified its stance on exchange-traded rupee derivatives, stating that there has been no material change in its requirements for brokers and clients. According to sources familiar with the central bank’s thinking, the RBI has not asked brokerages to provide proof of their clients’ underlying forex exposure.

In January, the RBI announced that exchanges could offer forex derivative contracts involving the rupee for hedging contracted exposure starting in April. While some brokers believed they would need to verify underlying exposure before allowing trades, the RBI has maintained that this requirement has always been in place.

Despite concerns raised by brokers about the impact on trading volumes, the rule is set to take effect on April 5. Some brokers have taken it upon themselves to ask clients for proof of underlying exposure if they wish to maintain their positions beyond April 4.

The sources, who chose to remain anonymous, emphasized that brokerages are implementing these measures voluntarily and have not been directed to do so by the central bank. The RBI has yet to respond to requests for comment on the matter.

Market participants, particularly proprietary traders and individual investors, are concerned that the need to prove underlying exposure will limit their ability to trade in rupee derivatives. According to data from the NSE, these traders accounted for 80% of the turnover in rupee derivatives in February, highlighting the potential impact of the new requirements on the market.