RBI Guidelines for Standalone PDs participation in Exchange Traded Currency Futures
The Reserve Bank of India today issued guidelines permitting standalone Primary Dealers (PDs) to participate in the exchange traded currency futures on approved stock exchanges subject to adherence to certain risk control measures and without diluting their existing obligations in the G-sec market. This is expected to diversify the participation profile in the currency futures market and to further deepen the market.
It may be recalled that it was announced in the Fourth Bi-monthly Monetary Policy Statement, 2015-16 of September 29, 2015 that the standalone PDs would be permitted to deal in currency futures contracts.
March 17, 2016
All Standalone Primary Dealers
Participation of Standalone Primary Dealers in Currency Futures Market
A reference is invited to A.P. (DIR Series) Circular No. 05 dated August 06, 2008, in terms of which persons resident in India are permitted to participate in the currency futures market in India subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008 [Notification No.FED.1/DG(SG)-2008 dated August 6, 2008] as amended from time to time.
2. In terms of the announcement made in paragraph 37 of the Fourth Bi-monthly Monetary Policy Statement, 2015-16, it has been decided to permit stand-alone Primary Dealers (PDs) to deal in currency futures contracts traded on recognized exchanges subject to the following conditions:
|Currency Pairs||Position Limits|
|USD-INR||Gross open position across all contracts shall not exceed 15% of the total open interest or USD 50 million, whichever is higher.|
|EUR-INR||Gross open position across all contracts shall not exceed 15% of the total open interest or EUR 25 million, whichever is higher.|
|GBP-INR||Gross open position across all contracts shall not exceed 15% of the total open interest or GBP 25 million, whichever is higher.|
|JPY-INR||Gross open position across all contracts shall not exceed 15% of the total open interest or JPY 1000 million, whichever is higher.|
The guidelines shall be effective from April 11, 2016
Chief General Manager
Capital Charge for Foreign Exchange (FE) Position:
Market Risk: As prescribed in the existing capital adequacy guidelines, the capital charge for market risk in foreign exchange may be worked out by the standardised approach and the internal risk management framework based Value at Risk (VaR) model. The capital charge for market risk would be higher of the two requirements.
Under standardised approach, PD’s net open positions in each currency should be calculated and the same shall be risk weighted as 100 per cent. These open positions shall be subject to a flat market risk charge of 15 per cent.
Credit Risk: Since currency futures contracts would be subject to CCP clearing of the authorised stock exchanges, capital charge for credit risk would be calculated as per methodology prescribed for calculation of capital charge for exposure towards CCP issued vide circular IDMD.PCD.11/14.03.05/2013-14 dated March 27, 2014. The Credit Conversion Factor (CCF) to be used for exchange rate contracts would be as under:
|CCF for Market-Related Off-Balance Sheet Items|
|Residual Maturity||CCF (%)|
|Exchange Rate Contracts|
|One year or less||2.00|
|Over one year to five years||10.00|
|Over five years||15.00|