Home › Circulars › RBI/2010-11/384

FFMCs and ADs Category-II in Currency Futures and Options

Current · Source: Reserve Bank of India · RBI/2010-11/384 · issued 25 Jan 2011 · ~2 min read
Quick answerRBI now allows FFMCs and ADs Category-II (excluding RRBs, LABs, UCBs, NBFCs) with minimum net worth of Rs. 5 crore to participate in SEBI-recognised currency futures and options exchanges as clients for hedging forex exposures.
The rule, in the simplest words
How it plays out — a real example

A forex & trade-finance officer in Indore, Priya, works for an AD Category-II firm that is not a bank. She checks that her firm has Rs. 5 crore net worth, then helps a local exporter buy currency futures on the exchange to lock in a good dollar rate for next month's payment, making sure it's only for hedging the exporter's real foreign exchange risk.

What changed

Previously, FFMCs and ADs Category-II were not explicitly permitted to trade in currency futures and exchange-traded currency options. This circular now allows eligible entities (with Rs. 5 crore net worth and not being RRBs, LABs, UCBs, or NBFCs) to participate as clients solely for hedging underlying forex exposures. Other categories like RRBs, LABs, UCBs, and NBFCs must follow separate instructions from their respective RBI regulatory departments.

What it means for you

Banks and lenders can now offer currency hedging products to a wider set of clients, including FFMCs and ADs Category-II, expanding the market for currency derivatives. This move deepens the forex hedging ecosystem and provides more avenues for managing currency risk. However, entities must ensure strict compliance with the net worth and client-only participation conditions.

What you must do

Who it affects

Full Fledged Money Changers (FFMCs), Authorised Dealers Category-II (ADs Category-II), Banks and financial institutions dealing with forex hedging, Regulatory compliance teams at authorised persons

❓ Common questions

Can RRBs, LABs, UCBs, or NBFCs participate under this circular?

No, this circular explicitly excludes them. They must follow instructions from their respective RBI regulatory departments.

What is the minimum net worth requirement for FFMCs and ADs Category-II to participate?

A minimum net worth of Rs. 5 crore is required to participate in currency futures and exchange-traded currency options as clients.

Can these entities trade for speculative purposes?

No, participation is allowed only for hedging underlying foreign exchange exposures, not for speculation.

📜 Read the original circular — full text as issued by RBI
RBI/2010-11/384 A.P. (DIR Series) Circular No. 40 A.P. (FL Series) Circular No. 10    January 25, 2011 All Authorized Persons, who are Full Fledged Money Changers and Authorised Dealers Category-II  Madam/ Sir, Participation by Full Fledged Money Changers (FFMCs) and Authorised Dealers Category-II (ADs Category-II) in the Currency Futures and the Exchange traded Currency Options markets Attention of all the Authorized Persons, who are Full Fledged Money Changers (FFMCs) and Authorised Dealers Category-II (ADs Category-II) is invited to the A.P.(DIR Series) Circular No. 5 dated August 6, 2008 and A.P.(DIR Series) Circular No. 5 dated July 30, 2010 enumerating the guidelines on trading of currency options contracts on recognized stock / new Exchanges. 2. It has now been decided that the FFMCs and the ADs Category-II [which are not Regional Rural Banks (RRBs), Local Area Banks (LABs), Urban Co-operative Banks (UCBs) and Non-Banking Financial Companies (NBFCs)], having a minimum net worth of Rs. 5 crore, may participate in the designated currency futures and currency options on exchanges recognized by the Securities and Exchange Board of India (SEBI) as clients only for the purpose of hedging their underlying foreign exchange exposures. 3.  FFMCs and the ADs Category–II which are RRBs, LABs, UCBs and NBFCs, may be guided by the instructions issued by the respective regulatory Departments of the Reserve Bank in this regard. 4. Authorised Persons may bring the contents of this circular to the notice of their constituents concerned. 5. The directions contained in this circular have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999), and non-compliance with the guidelines would attract penal provisions of Section 11(3) of the Act ibid.   Yours faithfully , (G. Jaganmohan Rao) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-11/384 · issued 25 Jan 2011. The plain-English explanation above is BankPulse’s own independent summary.
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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (Full Fledged Money Changers (FFMCs), Authorised Dealers Category-II (ADs Category-II), Banks and financial institutions dealing with forex hedging, Regulatory compliance teams at authorised persons), your first concrete step on “FFMCs and ADs Category-II in Currency Futures and Options” is: “Verify that FFMCs and ADs Category-II clients meet the minimum net worth of Rs. 5 crore before allowing participation.” (RBI issued this 25 Jan 2011).

  1. Circular: RBI/2010-11/384 -- FFMCs and ADs Category-II in Currency Futures and Options
  2. Issued: 25 Jan 2011
  3. Action required: Verify that FFMCs and ADs Category-II clients meet the minimum net worth of Rs. 5 crore before allowing participation.
  4. Action required: Ensure these entities participate only as clients for hedging underlying forex exposures, not for speculative trading.
  5. Action required: Exclude RRBs, LABs, UCBs, and NBFCs from this facility and direct them to follow their respective regulatory department instructions.
  6. Action required: Update internal compliance and KYC procedures to reflect the new eligibility criteria for currency futures and options trading.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6236&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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