To curb rupee fall, regulators toughen FX derivatives rules

RBI bans banks from proprietary trading in domestic currency futures and the exchange-traded options market

Regulators toughened rules for derivatives trading in the currency market in a bid to arrest the steep decline of the rupee, which fell to a record low against the dollar on Monday.

The Reserve Bank of India, in a notification issued late on Monday, banned banks from proprietary trading in domestic currency futures and the exchange-traded options market.

In a separate order, Sebi doubled the margin requirement on the domestic dollar-rupee forward trade, which means investors will now have to pay twice as much in margins for a transaction at the time of the trade itself.

Sebi said in a circular that it is reducing the exposure that brokers and their clients can take on currency derivatives and also doubled their margins on dollar-rupee contracts. The exposure to all currency contracts for a broker has been capped at 15% of their overall exposure or $50 million, whichever is lower.

For clients, this cap would be 6%, or $10 million, whichever is lower.

Sebi said that the new norms would be applicable with effect from July 11 and the changes have been decided in consultation with RBI "in the view of recent turbulent phase of extreme volatility in USD-INR exchange rate.

The current exposure limits for brokers and clients were the higher amounts of 15% of their overall exposure or $50 million, and 6% or $10 million, respectively.

The margin requirements are different across various categories and they are being increased by 100% of the present rates for rupee-dollar derivative contracts.