RBI Extends Deadline for Forex Exchange Traded Currency Derivatives to May 3rd, Impact on Market Uncertain

RBI Extends Deadline for Forex Exchange Traded Currency Derivatives to May 3rd.

Deadline for implementing new rules on exchange-traded rupee derivatives by the Reserve Bank of India (RBI) has been extended to May 3rd, as announced on Thursday, causing uncertainty in the market. The central bank cited feedback and recent developments for the decision to defer the implementation of the new rules, which were originally scheduled to take effect on April 5th.

RBI Extends Deadline for Forex Exchange Traded Currency Derivatives to May 3rd, Impact on Market Uncertain
RBI Extends Deadline for Forex Exchange Traded Currency Derivatives to May 3rd, Impact on Market Uncertain

The new rules require proprietary traders and retail investors participating in currency derivatives segments provided by exchanges like NSE and BSE to demonstrate contracted or prospective currency exposure. This directive had initially raised concerns among brokers and proprietary traders, who feared it could negatively impact the segment.

Exchange-traded currency derivatives, jointly regulated by RBI and Securities and Exchange Board of India (Sebi), play a crucial role in the market. Apart from the currency derivatives segment, exchanges offer equities cash and derivatives, interest rate derivatives, and commodity derivatives, making them an integral part of the financial ecosystem.

RBI clarified that the regulatory framework for participation in exchange-traded currency derivatives involving the rupee is guided by the provisions of the Foreign Exchange Management Act (FEMA). The directive from January 5th reiterated the existing regulatory framework without any changes, emphasizing the need for participants to have valid underlying contracted exposure to enter into currency derivatives.

Market participants had voiced concerns over the requirement to demonstrate currency exposure, as it could potentially impact trading volumes and participation. The extension of the deadline to May 3rd provides stakeholders with more time to assess and adapt to the new rules, mitigating some immediate concerns.

According to RBI, users of exchange-traded currency derivatives can take positions up to $100 million across all exchanges without providing evidence of the underlying exposure, subject to compliance with the overall framework. This flexibility aims to facilitate ease of doing business while ensuring regulatory compliance.

With NSE leading in terms of market share for currency derivatives trading, the impact of the new rules on the overall market dynamics remains uncertain. Average daily volumes of currency derivatives on NSE witnessed a slight decline in the previous fiscal year, indicating potential sensitivity to regulatory changes.

As the deadline for implementing the new rules approaches, market participants will closely monitor developments and adapt their strategies accordingly. The decision to defer the implementation reflects a balanced approach by RBI, considering feedback from stakeholders and the importance of maintaining a robust regulatory framework for exchange-traded currency derivatives.

Disclaimer: Financeyogi.net provides financial information for educational purposes only. We do not offer personalized financial advice and are not responsible for any decisions made based on the information provided. Users should consult with a qualified financial advisor before making any financial decisions.
Ajith Kumar

Ajith Kumar

Leave a Reply

!

Ads

Ads Blocker Detected!!!

We have detected that you are using extensions to block ads. Please support us by disabling these ads blocker.