What changed
RBI allowed persons resident in India to trade currency futures on SEBI-recognized stock exchanges, initially only for USD-INR contracts. This is a new exchange-traded derivative product, supplementing existing OTC forwards, swaps, and options. The Currency Futures (Reserve Bank) Directions, 2008, issued under RBI Act Section 45W and FEMA Section 47, govern participation.
What it means for you
Banks and their clients now have a standardized, exchange-traded tool for hedging currency risk, which can reduce counterparty credit risk and transaction costs. This deepens the forex derivatives market and offers more dynamic risk management options. AD Category-I banks must ensure clients comply with the new Directions and FEMA regulations.
What you must do
- Review the Currency Futures (Reserve Bank) Directions, 2008 and the amended FEMA regulations.
- Update internal policies to allow clients to participate in currency futures trading on recognized exchanges.
- Ensure clients are eligible 'persons resident in India' and have underlying forex exposure for hedging.
- Coordinate with SEBI-recognized exchanges for operational readiness and reporting.
- Train staff on the new product, its risks, and compliance requirements.
Who it affects
AD Category-I banks, Resident individuals and corporates with forex exposure, SEBI-recognized stock exchanges, Currency futures brokers and clearing members
What currency pairs are initially allowed for currency futures?
The Directions permit currency futures in US Dollar-Indian Rupee, and any other pairs approved by RBI from time to time.
Who can trade currency futures under these directions?
Only 'persons resident in India' can purchase or sell currency futures, primarily to hedge an exposure to foreign exchange risk.
Do these directions replace existing OTC forex derivatives?
No, currency futures are an additional tool. Existing OTC products like forwards, swaps, and options continue to be available for hedging.