What changed
RBI extended the guidelines on trading currency options on recognized stock/exchanges to AD Category-I UCBs. These banks can now participate in the exchange-traded currency option market only as clients, and only for hedging forex exposure arising from customer transactions. Participation requires prior specific approval from RBI's Urban Banks Department.
What it means for you
UCBs with AD Category-I license can now use exchange-traded currency options to hedge customer-driven forex risks, but cannot trade for proprietary purposes. This provides a new risk management tool for UCBs, but they must first obtain RBI approval and comply with all FED guidelines. Banks need to ensure their forex exposure is strictly from customer transactions to qualify.
What you must do
- Verify your UCB holds a valid AD Category-I license and meets all norms listed in Annexure I of circular UBD.PCB.Cir No. 21/16.12.000/06-07 dated November 27, 2006.
- Apply to RBI, Urban Banks Department, Central Office, Mumbai for specific approval before participating in the exchange-traded currency option market.
- Ensure participation is limited to hedging underlying forex exposure from customer transactions only, and operate solely as a client on SEBI-recognized exchanges.
Who it affects
AD Category-I Primary (Urban) Cooperative Banks, Urban Banks Department of RBI, SEBI-recognized stock/exchanges offering currency options
Can UCBs trade currency options for their own account?
No, participation is allowed only as clients and solely for hedging underlying forex exposure arising from customer transactions.
What is the process to start trading currency options?
UCBs must first obtain specific approval from RBI's Urban Banks Department, Central Office, Mumbai, after ensuring they meet all AD-I license norms.