Sebi tightens norms for rupee derivatives to align with RBI’s $5 million threshold | Today’s news
Mumbai: The Securities and Exchange Board of India (Sebi) has introduced a uniform limit of USD 5 million on outstanding positions in rupee-linked currency derivatives that domestic clients and foreign portfolio investors (FPIs) can hold across currency pairs and exchanges without creating underlying exposure.
In a circular issued on Thursday, the market regulator revised the existing provisions governing positions in currency derivatives and brought them in line with the revised thresholds announced by the Reserve Bank of India (RBI) on 10 October. The move brings all currency pairs linked to the rupee under a single aggregate limit, rather than treating positions in individual contracts separately. The RBI had earlier fixed the exposure limit for currency derivatives linked to the rupee at $100 million.
Under the revised framework, domestic clients and FPIs can take long or short positions of up to USD 5 million in notional value, outstanding at any point of time, across all currency pairs involving the Indian rupee and all recognized exchanges combined, without having to establish an underlying exposure. This exposure could include a foreign currency payment to be made or a receivable to be collected and secured.
The revised rules also prescribe specific conditions for FPIs. Their short positions in all contracts in foreign currency-rupee pairs cannot exceed USD 5 million on the exchanges. However, FPIs wishing to take long positions above this threshold must build an underlying exposure in Indian debt or equity securities, including units of shares and debt mutual funds.
Domestic clients, meanwhile, can hold positions in excess of USD 5 million, subject to the conditions laid down in RBI’s Master Instruction on Risk Management and Interbank Trades and its circular dated October 10, 2026.
The underlying exposure refers to the actual financial requirement or investment that supports the currency derivative position. For example, an importer with a future payment obligation in dollars or an exporter that expects earnings in a foreign currency may use derivatives to hedge the associated exchange rate risk.
The revised provisions supersede the respective threshold limits as per Sebi’s Master Circular for Exchanges and Clearing Companies dated December 30, 2024. The regulator said that all other requirements, conditions as per the earlier framework circular will remain unchanged except as modified by the latest circular or otherwise directed by Sebi.
Stock exchanges and clearing companies have been asked to put in place the necessary systems, make consequential changes to their rules and regulations, and communicate the revised provisions to stockbrokers and clearing members.
The circular follows a broader revision of the RBI’s rules governing foreign exchange derivatives involving the rupee, which also covers requirements relating to cancellation and rebooking of contracts and documentation for hedging contracted exposures.
