RBI’s New Currency Derivatives Rule Raises Concerns 

  • The Reserve Bank of India (RBI) has issued a directive on exchange-traded currency derivatives, raising concerns among proprietary traders and brokers. 
  • The circular mandates proprietary traders and retail investors to demonstrate contracted or prospective currency exposure to participate in currency derivatives segments provided by exchanges. 
  • The move has sparked concerns among prop traders and brokers, who fear the regulation could drain liquidity from the market. 
  • The RBI circular states that users can take positions (long or short) without establishing the existence of underlying exposure, up to a single limit of $100 million equivalent across all currency pairs involving INR, put together, and combined across all recognized stock exchanges. 
  • The maximum position limit for a non-bank trading member (broker) is $100 million across all contracts involving the Indian rupee across exchanges. 
  • The maximum position, or exposure, for a client, is 6% of all open positions, or $20 million, whichever is higher. 
  • The Commodity Participants Association of India (CPAI) has been seeking clarifications from the Securities and Exchange Board of India (Sebi) and the exchanges, but has not received any response thus far. 
  • The NSE leads with almost 99% share, with proprietary traders accounting for 62.3% of gross turnover.
Posted in Current Affairs.