Updated April 1st, 2024 at 19:37 IST

NSE, BSE affirm RBI's new FX derivative rules amid market concerns

The regulations require that exchange-traded rupee derivative transactions must be backed by an underlying foreign exchange exposure.

Reported by: Business Desk
Reserve Bank of India | Image:Shutterstock
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The National Stock Exchange of India Ltd and BSE Ltd issued circulars to brokers on Monday reinforcing the recent currency derivative rules set by the Reserve Bank of India (RBI). The move comes amid concerns from traders regarding potential impacts on market volumes.

The regulations, initially introduced by the RBI in a circular dated January 5, require that exchange-traded rupee derivative transactions must be backed by an underlying foreign exchange exposure. While a similar requirement existed previously, it was not rigorously enforced.

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As per the latest circular, stock exchanges are permitted to offer forex derivative contracts involving the rupee to users specifically "for the purpose of hedging contracted exposure," effective from April 5.

Traders in the market have expressed apprehension about the potential negative effects of the new rule on trading volumes. Concerns arise particularly because only a small percentage of clients possess actual forex exposure, with many participants being speculators and arbitrageurs.

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Despite brokers conveying their concerns to exchanges and regulatory bodies, there has been no indication of a change in the regulatory stance, according to a source familiar with the matter.

(With Reuters inputs)
 

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Published April 1st, 2024 at 19:37 IST