RBI permits cross currency futures, exchange traded options

The Reserve Bank of India (RBI) on Thursday issued the guidelines for cross currency futures and exchange traded cross currency option contracts in currency pairs.

According to the central bank, in order to enable direct hedging of exposures in foreign currencies and facilitate execution of cross-currency strategies by market participants, it has been decided to permit the recognised stock exchanges to offer cross-currency futures contracts and exchange traded option contracts in the currency pairs of euros-dollar, pound-dollar and dollar-yen.

Recognised stock exchanges are also permitted to offer exchange traded currency option contracts in euros-rupees, pounds-rupees and yen-rupees in addition to the existing dollar-rupees option contract, with immediate effect, the RBI said.

It said that the cross currency contracts shall enable direct hedging of exposures in foreign currencies and facilitate execution of cross-currency strategies by market participants.

The RBI said residents and foreign portfolio investors are allowed to take positions in the cross currency contracts without having to establish underlying exposure subject to the position limits as prescribed by the exchanges.

Authorised dealer category-I bank trading members may undertake trading in all permitted exchange traded currency derivatives within their net open position limit (NOPL) subject to limits stipulated by the exchanges (for the purpose of risk management and preserving market integrity).

However that any synthetic dollar-rupee position created using a combination of exchange traded foreign currency-rupee and cross-currency contracts shall have to be within the position limit prescribed by the exchange for the dollar-rupee contract.