According to informed sources, the Reserve Bank of India (RBI) has reportedly maintained its stance on exchange-traded rupee derivatives, refraining from significant alterations, and has not mandated brokerages to provide evidence of their clients’ underlying forex exposure.
In January, the RBI had announced that beginning April, exchanges could introduce forex derivative contracts involving the rupee for hedging contracted exposure.
“The underlying exposure requirement has always been in place. There has been no alteration to that,” remarked one source familiar with the central bank’s perspective.
Despite the circular issued by the RBI three months ago, brokers had interpreted that they would need to verify the underlying exposure before facilitating trades for clients.
This rule, slated to be enforced on April 5, was recently reiterated by exchanges following concerns raised by brokers regarding its potential impact on trading volumes.
Subsequently, some brokers independently requested their clients to furnish proof of underlying exposure if they intended to maintain existing positions beyond April 4.
The decision by these brokerages is voluntary and hasn’t been mandated by the central bank, clarified a second source knowledgeable about the RBI’s position.
The sources, preferring anonymity due to lack of authorization to engage with the media, disclosed that the RBI has not yet responded to requests for comment.
Brokerage firms had expressed apprehensions that the obligation to demonstrate underlying exposure could exclude a significant portion of market participants from trading in the segment.
According to a recent report by the National Stock Exchange (NSE), proprietary traders and individual investors, likely unable to provide proof of underlying forex exposure, accounted for 80% of the turnover in rupee derivatives in February.