The Reserve Bank of India (RBI) has allowed foreign portfolio investors (FPIs) and domestic players to access the currency futures market for hedging their currency risks without any underlying exposure up to $10 million. The central bank also partially reversed the restrictions put on banks’ proprietary trading, allowing them to take long or short position of up to $10 million without establishing any underlying exposure.
In July last, at the peak of the rupee crisis, the central bank had barred all banks from taking any proprietary positions in the currency futures market. It ruled that for banks, which wanted to take positions over $10 million, existence of an underlying was a must.
However, the central bank underscored an underlying exposure would be required in cases, where a foreign portfolio investor takes a long and short position in any exchange beyond $ 10 million.
For domestic players, RBI pointed that while underlying exposure was not required in terms of currency futures and exchange traded options markets, the same was mandatory for taking a position in the over-the-counter derivatives markets under terms of present regulatory framework.