The Reserve Bank of India (RBI) has extended the deadline for implementing rules regarding exchange-traded derivative contracts from April 5 to May 3, citing concerns raised about participation in the exchange-traded currency derivatives (ETCD) market in light of the RBI’s currency derivative norms.
In response to these concerns, the RBI emphasized that the regulatory framework for ETCDs has remained consistent over the years, with no change in the RBI’s policy approach.
The central bank’s circular dated January 5 stipulated that investors must ensure the existence of a valid underlying contracted exposure, which has not been hedged using any other derivative contract. They should be able to establish the same if required. The underlying in derivatives contracts refers to the order bill, receipt, or documents supporting the transaction in the case of exporters, importers, or remittances.
Recent reports have indicated that retail traders are hastily exiting their currency derivative positions, incurring significant losses, following alerts from brokers about an impending RBI circular just days before its implementation deadline. However, experts have clarified that the requirement outlined in the circular is not new and has been in place since at least 2020.
The recent circular serves to underscore this requirement and mandates exchanges to inform traders accordingly. Some brokerages have observed a sharp unwinding of currency derivative positions by clients in the past few days, following the RBI’s clampdown on currency derivative transactions. At least three brokerage firms have reported a 30-40 percent unwinding in currency derivatives positions over the past two days, according to reports.
