SEO Title: SEBI Revises Currency Derivatives Exposure Limit to USD 5 Million for FPIs and Domestic Clients
Summary: The Securities and Exchange Board of India (SEBI), through Circular No. HO/(561)2026-MRD-POD2/I/25177/2026 dated November 05, 2026, has revised the limits governing positions in exchange-traded currency derivatives involving the Indian Rupee (INR) that may be taken without establishing the existence of underlying exposure. The circular amends Clause 5.3.3 of the SEBI Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024, following the Reserve Bank of India’s A.P. (DIR Series) Circular No. 25 dated October 10, 2026. Under the revised framework, domestic clients and Foreign Portfolio Investors (FPIs) may take long or short positions in INR currency derivative contracts without demonstrating underlying exposure up to a single aggregate limit of USD 5 million equivalent in outstanding notional value. This limit applies collectively across all INR currency pairs and all recognised stock exchanges, rather than separately for each exchange or currency pair. FPIs must ensure that their aggregate short positions across FCY-INR contracts do not exceed USD 5 million. For long positions exceeding USD 5 million, FPIs must possess underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds. Domestic clients may exceed the USD 5 million threshold subject to the applicable RBI Master Direction and the October 10, 2026 circular. The RBI circular also addresses cancellation and rebooking of foreign exchange derivative contracts and documentation of contracted exposures. All other provisions of SEBI’s December 30, 2024 Master Circular remain unchanged unless otherwise modified. Stock exchanges and clearing corporations must implement the necessary system and regulatory changes, communicate the revised requirements to market participants and report their implementation status to SEBI.
SECURITIES AND EXCHANGE BOARD OF INDIA
Circular No. HO/(561)2026-MRD-POD2/I/25177/2026 | Dated: November 05, 2026
To,
All Stock Exchanges;
All Clearing Corporations;
All Depositories;
All Designated Depository Participants (DDPs) through Depositories;
All Custodians of Securities;
All Foreign Portfolio Investors (FPIs) through their DDPs.
Sir / Madam,
Subject: Revision of limits relating to requirement of underlying exposure for currency derivatives contracts
1. This is further to Clause 5.3.2.3 and Clause 5.3.3 of Master circular for Stock Exchanges and Clearing Corporations dated December 30, 2024, regarding the limits for currency derivatives contracts beyond which market participants are required to establish the existence of underlying exposure.
2. The Reserve Bank of India (RBI), vide A.P. (DIR Series) Circular No. 25 dated October 10, 2026, on Risk Management and Inter-Bank Dealings, has revised the threshold limits for taking positions in foreign exchange derivatives involving the Indian Rupee (INR) without establishing the existence of underlying exposure. RBI has also prescribed additional requirements relating to cancellation and rebooking of foreign exchange derivative contracts and documentation for hedging contracted exposures. A copy of RBI’s circular is enclosed for reference and necessary compliance.
3. Accordingly, the provisions of Clause 5.3.3 of SEBI Master Circular for Stock Exchanges and Clearing Corporations, related to threshold limits for taking unhedged positions in foreign exchange, dated December 30, 2024 are modified as under:
“5.3.3.1 Domestic clients and Foreign Portfolio Investors (FPIs) may take long or short positions in currency derivatives contracts involving INR, without having to establish the existence of underlying exposure, up to a single limit of USD 5 million equivalent of notional value (outstanding at any point), across all currency pairs involving INR, put together, and combined across all recognised stock exchanges.
5.3.3.2 FPIs shall ensure that their short positions at all stock exchanges across all contracts in FCY-INR pairs do not exceed USD 5 million.
5.3.3.3 ….
5.3.3.4 To take long positions in excess of USD 5 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.
5.3.3.5 Domestic clients may take positions in excess of USD 5 million in all contracts in FCY-INR pairs, subject to the conditions specified in the RBI’s Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to time, and RBI A.P. (DIR Series) Circular No. 25 dated October 10, 2026.
5.3.3.6 ….
5.3.3.7 ….”
4. All other requirements, terms and conditions specified in SEBI Master Circular dated December 30, 2024, shall remain unchanged, except to the extent modified by this circular or otherwise directed by SEBI.
5. Stock exchanges and clearing corporations are directed to:
a. Take necessary steps to put in place systems for implementation of this circular, including consequential amendments to the relevant bye-laws, rules and regulations;
b. Bring the provisions of this circular to the notice of stock brokers and clearing members and disseminate the same on their websites; and
c. Communicate to SEBI the status of implementation of the provisions of this circular.
6. This circular is being issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market.
Yours faithfully,
Meetu Aggarwal
Deputy General Manager
Tel. No. 022-20752249
Email: [email protected]
Enclosure:
