What changed
The Reserve Bank of India (Margin for Derivative Contracts) Directions, 2024 supersede the earlier A. P. (DIR Series) Circular No. 10 dated February 15, 2021. The new Directions consolidate and update the framework for posting and collecting margin on permitted derivative contracts between residents and non-residents, and for overseas branches and IFSC Banking Units. They also explicitly allow AD Cat-I banks to post/collect margin on behalf of their customers for such contracts.
What it means for you
Banks and standalone primary dealers now have a single, updated regulatory reference for margin on cross-border derivatives, replacing the earlier circular. The Directions clarify that margin can be posted/collected both in India and abroad, and interest can be paid/received on such margin. AD Cat-I banks can also act on behalf of customers for margin on permitted derivative contracts with non-residents, which may streamline client hedging activities.
What you must do
- Review and update internal policies to align with the new RBI (Margin for Derivative Contracts) Directions, 2024.
- Ensure that margin posting/collection for permitted derivative contracts with non-residents complies with the specified forms (e.g., cash, government securities, etc.) as per the Directions.
- Train relevant staff on the expanded scope, including margin for overseas branches and IFSC Banking Units.
- Verify that customer margin arrangements for cross-border derivatives are handled in line with the new Directions.
Who it affects
Authorised Dealer Category-I (AD Cat-I) banks, Authorised Dealer Category-III Standalone Primary Dealers (AD Cat-III SPDs), Customers of AD Cat-I banks entering into permitted derivative contracts with non-residents, Overseas branches and IFSC Banking Units of AD Cat-I banks
What is the effective date of the new Directions?
The Directions came into force with immediate effect from May 8, 2024, superseding the earlier circular of February 15, 2021.
Can AD Cat-I banks post margin on behalf of their customers?
Yes, the Directions explicitly allow AD Cat-I banks to post and collect margin, in India and outside India, on behalf of their customers for permitted derivative contracts with non-residents.
What forms can margin take when posted in India?
Margin posted and collected in India must be in forms specified in the Directions, which include cash, government securities, and other eligible instruments as detailed in the full text.