India keen to ease restrictions for Forex derivatives trading

According to reports from Shishir Sinha from India’s The HinduBusinessLine, India’s financial market regulator – the Securities & Exchange Board of India (SEBI), in consultation with the Reserve Bank of India, is set to relax norms in the currency derivative market.


“The two regulators are working together to relax the open position limit and extend the time for the market. Circulars in this regard are expected to be out very soon,” a highly-placed source told BusinessLine.

At present, two forms of derivative products are available – futures and options. India’s objective is to raise the open position limit, sources said, providing more stability in the market. In order to curb extreme volatility, SEBI revised the position limits for exchange traded currency in consultation with the RBI in July last year and curtailed position limits and increased the margin requirements. The positions were reviewed in June and October this year.

Accordingly, the gross open position of a client across all contracts will not exceed 6% of the total open interest or $10 million/€5 million/£5 million/¥20 million (whichever is higher). At the same time, the gross open position of a trading member, who is not a bank, across all contracts, has been capped at 15% of the total open interest or $50 million/€25 million/£25 million/¥1000 million (whichever is higher).

Trade hours extended while institutions allowed to enter exchanges in India

SEBI also plans to extend the trading in currency derivatives till 7:30 p.m. instead of 5:00 p.m. Exchanges — BSE, NSE and MCX-SX — have been demanding extension of trading hours to facilitate market participants to adjust and alter their positions in line with currency movements in global markets. Longer trading hours will help in controlling sharp volatility in currency markets abroad, such as Singapore, where domestic regulators have no control, this should help control price gaps accordingly.

India’s currency derivative market got a boost in June this year when the RBI allowed foreign portfolio investors (FPIs) to hedge their investment in India. This can be done by accessing the currency futures or exchange traded currency options market. FPIs include foreign institutional investors and qualified foreign investors. Earlier, such investors, wanting to hedge their equity positions, had to go abroad. The move is expected to boost forex inflow.

To view The Hindu: Business Line original article, click here.

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