What changed
Previously, SPDs could only offer foreign exchange products to FPI clients as a non-core activity. Now, they are permitted to provide all forex market-making facilities to all users, on par with Category-I Authorised Dealers, subject to prudential regulations to be issued separately. Additionally, from January 1, 2023, all rupee transactions by related entities of SPDs globally must be reported to CCIL's Trade Repository by 12:00 noon the next business day.
What it means for you
This move strengthens SPDs as market makers, giving forex customers more options to manage currency risk and deepening the forex market. For banks, it increases competition in forex market-making, but SPDs remain focused on government securities. Lenders should note the expanded role of SPDs and the new reporting obligations for rupee transactions.
What you must do
- Review and update internal policies to recognize SPDs as full forex market-makers.
- Ensure compliance with the new trade reporting requirement for rupee transactions from January 1, 2023.
- Monitor separate prudential guidelines expected from RBI for SPD forex activities.
- Assess competitive impact on your own forex market-making business.
Who it affects
Standalone Primary Dealers (SPDs), Category-I Authorised Dealers (banks), Forex customers and FPI clients, CCIL and trade reporting systems
What specific activities are now allowed for SPDs?
SPDs can offer all foreign exchange market-making facilities to any user, just like Category-I Authorised Dealers, subject to prudential guidelines to be issued separately.
When does the new trade reporting requirement start?
From January 1, 2023, all rupee transactions by related entities of SPDs globally must be reported to CCIL's Trade Repository by 12:00 noon the next business day.
Does this change affect the primary focus of SPDs?
No, the RBI statement clarifies that government securities primary issuance and secondary market activities remain the major focus of SPDs.