RBI mulls allowing banks to trade FX derivatives on offshore ETPs

RBI proposes allowing banks to trade forex derivatives on offshore electronic platforms under tighter safeguards, governance norms and rupee transaction restrictions

The Reserve Bank of India (RBI) has proposed allowing authorised dealers — commercial banks and primary dealers — to undertake foreign exchange and currency interest rate derivative transactions on electronic trading platforms (ETPs) located outside India, subject to defined regulatory safeguards, according to draft directions on Foreign Exchange Dealings of Authorised Persons released on Tuesday.

 

Under the draft framework, such offshore platforms must be located in jurisdictions that are members of the Financial Action Task Force and regulated by authorities affiliated with the Committee on Payments and Market Infrastructures or the International Organization of Securities Commissions. For trades involving the rupee, authorised dealers may transact only with non-residents, and the offshore ETP operator will be required to publicly disseminate transaction data. 

The RBI has invited comments from market participants and other stakeholders by March 10. 

The draft also proposes that authorised dealer (AD) Category-I banks may undertake rupee non-deliverable derivative contracts (NDDCs) with other ADs and overseas entities, including International Financial Services Centre (IFSC) Banking Units (IBUs) and Offshore Banking Units (OBUs), either directly or on a back-to-back basis through their overseas branches. Such contracts may be cash-settled in rupees or any foreign currency, subject to the condition that the bank, or its non-resident parent, has an operating IBU.

 

In addition, the RBI has set out governance requirements for authorised dealers. They would be required to frame a board-approved policy on foreign exchange dealings, including a net overnight open position (NOOP) limit capped at 25 per cent of total capital (Tier I and Tier II), which must be communicated to the central bank. The RBI would retain the discretion to prescribe a separate net open position limit involving the rupee, depending on market conditions.

 

The draft reiterates overseas foreign currency borrowing limits for AD Category-I banks at 100 per cent of Tier I capital or $10 million, whichever is higher, unless prior RBI approval is obtained. Certain categories — including borrowings for export credit, capital-raising purposes, specified interest-free funds from the head office, and short-term nostro overdrafts — remain outside this cap. Standalone Primary Dealers authorised as AD Category-III may borrow within limits prescribed under the Standalone Primary Dealers Directions, 2025.

 

The central bank has also consolidated norms governing the deployment of surplus foreign currency funds by authorised dealers. Subject to a board-approved policy, ADs may undertake overnight placements, reverse repos of up to one year against overseas sovereign debt, investments in overseas money market or sovereign debt instruments with maturities of up to one year, and lending in rupees or foreign currency in terms of the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018. Undeployed FCNR(B) funds may also be invested in long-term overseas sovereign debt, subject to residual maturity conditions.

 

For the purpose of the draft circular, “authorised persons” refers to AD Category-I banks and Standalone Primary Dealers authorised as Authorised Dealer Category-III under Section 10(1) of the Foreign Exchange Management Act, 1999.

 

The move comes amid the RBI’s broader efforts over the past year to streamline foreign exchange regulations, deepen derivative markets, and align trading practices with evolving electronic platform norms.