RBI delays implementing rules on exchange-traded derivatives till May 3

The Reserve Bank of India on Thursday delayed the implementation of its consolidated directions for exchange-traded currency derivatives (ETCD) by a month, a move that should ease the panic seen in the market this week.
 

The Indian rupee's exchange-traded options went into a tizzy on Wednesday and Thursday after brokers asked clients to submit proof of underlying exposure on their derivative contracts or unwind their existing positions, market participants said.
 

"In view of feedback received and recent developments, it has been decided that these directions will now come into effect from Friday, May 03, 2024," RBI said.
 

The central bank said it had permitted users, for the ease of doing business, to take positions of up to $100 million across exchanges without providing documentary evidence to establish the underlying exposure.
 

However, it did not provide any exemptions from the requirement of having the exposure, a requirement that has always existed.

The RBI emphasised that the regulatory framework for ETCDs has remained consistent over the years and that there was no change in the central bank's policy approach.
 

"It prima facie looks like an extension so that participants have time to close out their positions," said Abhilash Koikkara, head of forex and rates at Nuvama Professional Clients Group.
 

"The notification explicitly mentions that exchange traded derivatives can only be used by participants having valid underlying (exposure). Nuvama will continue to ask for an undertaking from its clients to show that they have contracted exposure."