MUMBAI (Reuters) – India’s central bank reiterated on Friday that underlying foreign exchange exposure is necessary for transacting in rupee derivatives on exchanges.
The requirement of underlying exposure for rupee derivatives has always been the central bank’s policy “for the last so many years”, the central bank’s Governor Shaktikanta Das said at a post policy media conference.
The regulations of Foreign Exchange Management Act clearly state that exchange traded currency derivatives “are for hedging only”, Reserve Bank of India (RBI) Deputy Governor Michael Patra said.
“When you state that, it implies that you must have an underlying exposure,” Patra said.
The central bank had, in 2014, 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.
“Some market participants have been misusing this to understand that a relaxation in documentary evidence is tantamount to no underlying, which is not the case and that is a violation of the law,” the deputy governor said.
The RBI on Thursday delayed the implementation of its consolidated directions for exchange-traded currency derivatives by a month.
Earlier this week, rupee’s exchange-traded options went into a tizzy as brokers asked clients to submit proof of underlying exposure or unwind their existing positions.
(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala)
