Bourses direct brokers to follow RBI circular on currency derivatives

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MUMBAI : In late evening circulars stock exchanges NSE and BSE directed their member-brokers to take note of the Reserve Bank of India (RBI) notification of 5 January on hedging of foreign exchange risk, which restricts the use of exchange traded currency derivatives (ETCD) to hedging only from 5 April onwards. The circulars , according to some brokers, could spell the end of the 16-year-old ETCD as most of those who infuse liquidity into the market—proprietary and retail clients—act as counterparties to hedgers.

"Attention is drawn to RBI notification on ‘Risk Management and Inter-Bank Dealings—Hedging of foreign exchange risk’ dated January 05, 2024. A copy of the same is attached as Annexure," said the NSE circular released late evening on 1 April.

"This is with reference to RBI notification regarding Risk Management and Inter-Bank Dealings—Hedging of foreign exchange risk...Trading Members are requested to take note of the same," read the BSE circular , which annexed the RBI notification like NSE . After the circulars were issued by the two exchanges, top brokers who offer currency derivatives trading said that they would put clients' forex contract pairs involving rupee on square-off mode from 2 April .

This would enable their clients without underlying forex exposure to only square off , or close out, their existing contracts and not take any incremental exposure. "We will put all currency derivatives involving the rupee on square-off mode," said Kishore Narne, director, Motilal Oswal Financial Services.

"Only clients having underlying exposure will be able to take incremental positions after 5 April. Clients without underlying exposure will be able to only square off (close out) their existing positions." The