Sebi raises currency derivative trade limit to $100 mn

New Delhi: Capital markets regulator Sebi on Thursday raised the exposure limit under exchange-traded currency derivatives trading for residents and FPIs to $100 million across all currency pairs involving the Indian rupee.

The move will help entities engaged in forex transactions to maintain their currency risks in a better manner.

The decision comes after the Reserve Bank of India (RBI) in February raised these limits, beyond which market participants would be required to establish proof of underlying exposure in the currency derivatives segment.

"Domestic clients/FPIs may take long or short positions without having to establish existence of underlying exposure, up to a single limit of $100 million equivalent, across all currency pairs involving INR, put together, and combined across all the stock exchanges," Sebi said in a circular.

Earlier, there were two different sets of limits based on currency pairs -- $15 million for FPIs in USD-INR per exchange, while FPIs were allowed to take long (bought) as well as short (sold) positions in EUR-INR, GBP-INR and JPY-INR pairs, all put together, up to $5 million equivalent per exchange.

The regulator has asked Foreign Portfolio Investors (FPIs) to ensure that their short positions at all exchanges across all contracts in foreign currency (FCY) and Indian rupee pairs do not exceed $100 million.

In the event a FPI breaches the short position limit, exchanges will have to restrict such investors from increasing its existing short positions or creating new short positions in the currency pair till such time FPI complies with the requirement, Sebi said.

"To take long positions in excess of $100 million in all contracts in FCY-INR pairs, FPIs shall be required to have an underlying exposure in Indian debt or equity securities, including units of equity/debt mutual funds," it added.

The regulator further said that the onus of complying with the provisions of this decision rests with the participant in the exposure limit under exchange traded (ETCD) market.

In case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act.

These limits shall be monitored by stock exchanges and clearing corporations and breaches, if any, would need to be reported to the RBI.