Non-residents allowed to open margin accounts for derivative contracts

The move by RBI is expected to enhance efficiency in managing margin obligations

The Reserve Bank of India (RBI) on Friday said non-residents could open accounts through authorised dealers for collecting margin money for derivative contracts.

They can open accounts in both foreign currencies and the rupee, said a notification by the central bank.

Market participants, however, have indicated this is unlikely to have a significant impact.

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“This will not have a major impact because it is just adjustment in regulations,” said a senior executive at a brokerage.

But the introduction of a dedicated account for margin requirements would enhance efficiency in managing margin obligations and associated funds for non-residents participating in permitted derivative contracts.

The government of India has published a notification in the Gazette dated May 6, 2024.

“It will lead to better management of funds and make it easier for foreign investors to do trades. Apart from that, I don’t see any impact,” said an executive at another brokerage.

“An authorised dealer in India may allow a person resident outside India to open, hold and maintain an interest bearing account in Indian Rupees and/or foreign currency for the purpose of posting and collecting margin in India, for a permitted derivative contract entered into by such person,” said the notification.

Currently, the RBI permits interest-rate derivatives such as interest-rate swaps, forward-rate agreements, and interest-rate futures, as well as foreign-currency derivatives including foreign-currency forwards, currency swaps, and currency options. Similarly, in the equity domain, permissible derivative contracts encompass forward contracts, futures contracts, options contracts, and swap contracts.