The Reserve Bank of India on Tuesday proposed greater flexibility for authorised persons to undertake foreign exchange transactions for hedging exposures, balance sheet management and market-making, following a review of existing regulations.
The central bank issued draft directions on ‘Foreign Exchange Dealings of Authorised Persons’ aimed at providing enhanced operational freedom to authorised dealers, while also easing reporting requirements.
Wider scope for hedging and market-making
Authorised banks and standalone primary dealers access the foreign exchange market for market-making, balance sheet management and risk hedging.
According to the draft, an authorised dealer may undertake permitted foreign exchange transactions with other authorised dealers for hedging its exposures, balance sheet management, market-making and proprietary positions.
They will also be allowed to borrow and lend in foreign currency.
Further, the draft proposes that an authorised dealer may undertake non-deliverable derivative contracts (NDDCs) involving the rupee with other authorised dealers.
“An authorised dealer may undertake foreign exchange derivative contracts and foreign currency interest rate derivative contracts on electronic trading platforms (ETPs) authorised by the Reserve Bank,” the draft said.
The RBI has invited comments on the draft directions by March 10.
Trading on overseas platforms with safeguards
The draft also permits authorised dealers to undertake transactions on electronic trading platforms outside India, subject to certain conditions.
One key condition is that the ETP operator must be incorporated or set up in a country that is a member of the Financial Action Task Force (FATF), according to PTI.
Gold hedging provisions
The draft directions also address gold-related transactions.
A designated bank under the Gold Monetisation Scheme, 2015, and a bank allowed to enter into forward gold contracts with its constituents in India, may hedge its gold price risk using exchange-traded and over-the-counter (OTC) hedging products in overseas markets.
“While using products involving options, the bank may ensure that there is no net receipt of premium, either direct or implied,” the draft stated.
Authorised persons, as defined under the framework, include authorised dealer category-I banks and certain standalone primary dealers.
