What changed
Previously, FFMCs and ADs Category-II were not explicitly permitted to trade in currency futures and exchange-traded currency options. This circular now allows eligible entities (with Rs. 5 crore net worth and not being RRBs, LABs, UCBs, or NBFCs) to participate as clients solely for hedging underlying forex exposures. Other categories like RRBs, LABs, UCBs, and NBFCs must follow separate instructions from their respective RBI regulatory departments.
What it means for you
Banks and lenders can now offer currency hedging products to a wider set of clients, including FFMCs and ADs Category-II, expanding the market for currency derivatives. This move deepens the forex hedging ecosystem and provides more avenues for managing currency risk. However, entities must ensure strict compliance with the net worth and client-only participation conditions.
What you must do
- Verify that FFMCs and ADs Category-II clients meet the minimum net worth of Rs. 5 crore before allowing participation.
- Ensure these entities participate only as clients for hedging underlying forex exposures, not for speculative trading.
- Exclude RRBs, LABs, UCBs, and NBFCs from this facility and direct them to follow their respective regulatory department instructions.
- Update internal compliance and KYC procedures to reflect the new eligibility criteria for currency futures and options trading.
Who it affects
Full Fledged Money Changers (FFMCs), Authorised Dealers Category-II (ADs Category-II), Banks and financial institutions dealing with forex hedging, Regulatory compliance teams at authorised persons
Can RRBs, LABs, UCBs, or NBFCs participate under this circular?
No, this circular explicitly excludes them. They must follow instructions from their respective RBI regulatory departments.
What is the minimum net worth requirement for FFMCs and ADs Category-II to participate?
A minimum net worth of Rs. 5 crore is required to participate in currency futures and exchange-traded currency options as clients.
Can these entities trade for speculative purposes?
No, participation is allowed only for hedging underlying foreign exchange exposures, not for speculation.