What changed
Previously, AD Category-I banks could trade currency futures and options for their own account. Now, RBI has banned all proprietary trading in these instruments, restricting banks to client-only transactions. The change is effective from July 8, 2013, and remains in force until further orders.
What it means for you
Banks can no longer use their own capital to speculate in currency futures/options markets, reducing their risk exposure. This may lower market liquidity initially as banks shift to agency roles. Lenders must ensure all trades are client-driven and comply with KYC/AML norms.
What you must do
- Immediately cease all proprietary trading in currency futures and exchange-traded currency options.
- Ensure all transactions in these markets are executed only on behalf of clients.
- Update internal risk management policies and trading systems to reflect the ban.
- Train treasury and compliance teams on the new client-only mandate.
- Review existing proprietary positions and unwind them in compliance with RBI guidelines.
Who it affects
AD Category-I banks, Treasury departments of banks, Currency futures and options exchanges, Clients of AD Category-I banks
Does this ban apply to all currency derivatives or only futures and options?
The circular specifically prohibits proprietary trading in currency futures and exchange-traded currency options. Other currency derivatives like forwards or swaps are not covered by this instruction.
Can banks still trade currency futures on behalf of their corporate clients?
Yes, banks can continue to execute client orders in currency futures and options markets, but they cannot trade for their own account.
Is there any end date for this restriction?
The circular states the ban is effective immediately and shall remain in force till further orders. No specific end date has been provided.