Circular, CIR/MRD/DP/20/2014,
dated June 20, 2014
The Hon’ble
Finance Minister in his Budget 2013-2014 speech on February 28, 2013 had announced
that “FIIs will be allowed to participate in the exchange traded currency
derivative segment to the extent of their Indian rupee exposure in India”.
2. Pursuant to
notification dated May 21, 2014 on Foreign Exchange Management (Foreign
Exchange Derivative Contracts) (Amendment) Regulations, 2014, Reserve Bank of
India (RBI) vide A.P. (DIR Series) Circular no. 148 dated June 20, 2014 has
allowed FPIs, who are eligible to invest in securities as laid down in
Schedules 2, 5, 7 and 8 of Foreign Exchange Management (Transfer or Issue of
Security by a person resident outside India) Regulations, 2000, to enter into
currency futures or exchange traded currency options contracts, subject to
terms and conditions mentioned in the said circular. Copy of the RBI circular
is enclosed for reference.
Participation of
FPIs in the Currency Derivatives Segment
3. In view of the
above, FPIs are permitted to trade in the currency derivatives segment of stock
exchanges, subject to terms and conditions mentioned in this circular and
aforesaid RBI circular.
4. Accordingly,
para I.1.d. of the SEBI Circular SEBI/DNPD/Cir-38/2008 dated August 06, 2008
regarding Exchange Traded Currency Derivatives is modified as under:
Appropriate mechanisms are implemented
to prevent participation in Exchange Traded Currency Derivatives of “persons
resident outside India”, as defined in Section 2(w) of the Foreign Exchange
Management Act, 1999, except persons allowed under regulation 5B of Foreign Exchange
Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations,
2014.
5. Within the
applicable position limits specified in para 12, positions taken by the FPIs in
the currency derivatives segment of a recognised stock exchange shall be
subject to the following conditions:
(a) FPIs may take long as well as
short positions in the permitted currency pairs upto USD 10 million / EUR 5
million / GBP 5 million / JPY 200 million, as applicable, per stock exchange
without having to establish the existence of any underlying exposure.
(b) FPIs shall ensure that their
short positions at a stock exchange across all contracts in a permitted
currency pair do not exceed USD 10 million / EUR 5 million / GBP 5 million /
JPY 200 million, as applicable. In the event a FPI breaches the short position
limit, stock exchanges shall restrict the FPI from increasing its existing
short positions or creating new short positions in the currency pair till such
time FPI complies with the said requirement.
(c) To take long positions in the
permitted currency pair in excess of USD 10 million / EUR 5 million / GBP 5
million / JPY 200 million, as applicable, FPIs shall be required to have an underlying
exposure in Indian debt or equity securities, including units of equity/debt
mutual funds.
6. Primary onus
for ensuring compliance with the above provisions shall rest with the FPI.
7. With regard to
enabling monitoring of positions of FPIs as per the provisions of the RBI A.P.
(DIR Series) Circular no. 148 dated June 20, 2014, the following shall be
implemented by the clearing corporations and the custodians of securities of
the FPIs:
(a) The clearing corporation shall
provide details on the FPI’s day-end and day’s highest open positions at end of
day to the custodians of securities of the FPI.
(b) The custodian of securities of
the FPI shall aggregate the positions taken by the FPI on the currency
derivatives segments of all the stock exchanges and forward such details to the
designated bank of the FPI as defined at regulation 2(1)(e) of the Securities
and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.
The custodian of securities of the FPI shall also provide the market value of applicable
underlying exposure of the FPI to the designated bank of the FPI.
Participation of
domestic clients in the currency derivatives segment
8. RBI vide A.P.
(DIR Series) Circular no. 147 dated June 20, 2014 has revised the participation
requirements for the domestic participants in the currency derivatives segment.
Copy of the RBI circular is enclosed for reference.
9. Accordingly,
within the applicable position limits specified in para 12, positions taken by
the domestic clients shall be subject to the following conditions:
(a) Domestic clients may take long
or short positions in the permitted currency pairs upto USD 10 million / EUR 5
million / GBP 5 million / JPY 200 million, as applicable, per stock exchange
without having to establish the existence of any underlying exposure.
(b) Domestic clients may take
positions in the permitted currency pairs in excess of USD 10 million / EUR 5
million / GBP 5 million / JPY 200 million, as applicable, subject to the
conditions specified the RBI A.P. (DIR Series) Circular no. 147 dated June 20,
2014.
10. Stock brokers
shall comply with the requirements mentioned in the RBI A.P. (DIR Series)
Circular no. 147 dated June 20, 2014 while dealing with domestic clients and
shall bring to the notice of their clients the requirements specified in this
circular and the aforementioned RBI circular.
11. The primary
onus of complying with the relevant provisions of the RBI A.P. (DIR Series)
Circular no. 147 dated June 20, 2014 shall rest with the client and in case of
any contravention, the client shall render itself liable to any action that may
be warranted by RBI as per the provisions of Foreign Exchange Management Act,
1999 and Regulations, Directions, etc. framed thereunder.
Position limits
in the permitted currency pairs
12. In modification
to position limits specified vide SEBI circular CIR/MRD/DP/22/2013 dated July
08, 2013 for USD-INR contracts and in partial modification to the position
limits specified for EUR-INR, GBP-INR and JPY-INR contracts vide SEBI circular
SEBI/DNPD/Cir-52/2010 dated January 19, 2010, the revised position limits per
stock exchange shall be as follows:
(a) Position
limits for Stock Brokers (bank and non-bank), Category I & II FPIs: The
position limits shall be as given in the table below.
Currency
Pair
|
Position
limits
|
USD-INR
|
Gross open
position across all contracts shall not exceed 15% of the total open interest
or USD 100 million, whichever is higher.
|
EUR-INR
|
Gross open
position across all contracts shall not exceed 15% of the total open interest
or EUR 50 million, whichever is higher.
|
GBP-INR
|
Gross open
position across all contracts shall not exceed 15% of the total open interest
or GBP 50 million, whichever is higher.
|
JPY-INR
|
Gross open
position across all contracts shall not exceed 15% of the total open interest
or JPY 2000 million, whichever is higher.
|
(b) Proprietary
positions of non-bank stock brokers: Proprietary positions of non-bank
stock brokers shall be subject to position limits mentioned at para 12(c).
(c) Position
limits for Clients and Category III FPIs: The position limits shall be as
given in the table below.
Currency
Pair
|
Position
limits
|
USD-INR
|
Gross open
position across all contracts shall not exceed 6% of the total open interest
or USD 10 million, whichever is higher.
|
EUR-INR
|
Gross open
position across all contracts shall not exceed 6% of the total open interest
or EUR 5 million, whichever is higher.
|
GBP-INR
|
Gross open
position across all contracts shall not exceed 6% of the total open interest
or GBP 5 million, whichever is higher.
|
JPY-INR
|
Gross open
position across all contracts shall not exceed 6% of the total open interest
or JPY 200 million, whichever is higher.
|
13. Stock exchanges
shall impose appropriate penalties for violation of position limits by stock
brokers / FPIs / domestic clients.
14. In case of
positions taken to hedge underlying exposure, the position limit linked to open
interest shall be applicable at the time of opening a position. Such positions
shall not be required to be unwound in the event a drop of total open interest
in a currency pair at a stock exchange. However, participants shall not be
allowed to increase their existing positions or create new positions in the
currency pair till they comply with the position limits.
15. All other
conditions as specified vide earlier SEBI Circulars shall remain unchanged.
Stock exchanges / Clearing corporations may specify additional safeguards /
conditions, as deemed fit, to manage risk and to ensure orderly trading.
16. Depositories
are directed to forward this circular to the DDPs, who shall in turn bring the
contents of this circular to the notice of the FPIs registered with them.
17. Stock Exchanges
and Clearing Corporations are directed to:
(a) take necessary steps to put in
place systems for implementation of the circular by June 27, 2014,
including necessary amendments to the relevant bye-laws, rules and regulations.
(b) bring the provisions of this
circular to the notice of the stock brokers / clearing members and also
disseminate the same on their website;
(c) communicate to SEBI the status
of implementation of the provisions of this circular.
18. This circular
is being issued in exercise of powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act, 1992 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
Enclosures:
.
.
.
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