The Commodity Participants Association of India has sought clarification from banking regulator RBI on whether customers who have only one underlying exposure will be allowed to trade in foreign exchange futures contracts from April 5 and, if so, whether all open positions will be cleared before the deadline Need to become.
In January, the RBI had issued a circular stating that recognized exchanges could offer rupee foreign exchange derivative contracts to their users for the purpose of hedging contractual risk.
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It also said exchanges could offer non-rupee foreign exchange derivatives contracts without any restrictions.
In other words, CPAI said exchanges are required to inform customers that while they are not required to provide evidence of underlying risk for positions of up to $100 million, customers must ensure that such risks exist and that they can demonstrate this should not already be hedged by another derivative product.
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In contrast to the 2008 order
The RBI's current stance is in contrast to the August 2008 circular requiring exchanges to inform their users that while they are not required to demonstrate the existence of an underlying risk, they are required to ensure the existence of a valid underlying contractual risk cannot be hedged by another derivative contract and should be able to determine this if necessary.
According to CPAI, in 2008, the RBI took the stand that dollar/rupee currency futures transactions were permissible for hedging exchange rate risks or other risks.
The association also wants to know whether the $100 million limit applies to trading across all rupee currency pairs overall and across all exchanges, he added.
The unclear RBI circular comes at a time when volumes in the Dubai Gold and Commodity Exchange's offshore foreign exchange futures markets have been steadily increasing compared to onshore exchanges. Policymakers promoted “trade in India” with an unclear message, the CPAI said.
“We have also written to the RBI because we have concerns about possible disruption to the underlying market-traded foreign exchange futures contracts. It is important to recognize that in addition to the pure currency hedgers with underlying exposure, these markets also involve various financial players, arbitrageurs, which further reinforces the importance of effectively managing potential disruptions,” said Narinder Wadhwa, President, CPAI.
The association has asked the exchanges to issue a clarification in a timely manner along with a frequently asked questions document to clarify the matter. A delay could potentially lead to panic at the last moment.
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