RBI lets exporters, importers sell European call, put options

To deepen the liquidity in the over- the-counter currency options market, RBI today allowed exporters and importers to sell standalone plain vanilla European call and put option contracts against their contracted exposure to any authorised dealers.
This move, subject to operational guidelines such as not to be considered as a hedging strategy, means all covered call and covered put options and is a follow up of the April 2015 policy announcement.
The decision is aimed at allowing writing of options against contracted exposures by resident citizens, the central bank said in a notification.
RBI said it will review these new guidelines after a year, but added that such covered options shall not be considered as a hedging strategy.

The central bank had in December 2010 amended the OTC forex derivatives and overseas hedging of commodity price and freight risks, which was again amended in November 2011.
The notification said the new norms will be applicable to Category-I authorised dealers who have RBI nod to run cross-currency and foreign currency- rupee options books; and listed companies and their subsidiaries/JVs/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum networth of Rs 200 crore.

RBI said the move will allow resident exporters to sell or write a standalone plain vanilla European call option contract or put option contract to an Category-I authorised dealer against the cover of contracted exposure arising out of exports of goods and services from the country.

It also does not allow these options to be a combination of an underlying cash instrument and a generic derivative product, but they shall be treated as structured derivative products in terms.
RBI further said dealers may enter into covered options with their exporter or importer constituents only after obtaining specific approval from their competent authority.