The Securities and Exchange Board of India (Sebi) has introduced a new set of norms to curb the flow in rupee-related currency derivatives transactions. The move, which follows a recent Reserve Bank of India (RBI) circular, is expected to reduce pressure on the rupee at a time when geopolitical tensions and market instability have caused the currency to depreciate.
Mint explains the changes are and whether they will help the rupee.
Under Sebi’s revised rules, domestic investors and foreign portfolio investors (FPIs) can hold long or short rupee-denominated currency positions of up to $5 million across all stock exchanges combined, without needing to prove an underlying investment exposure.
The revised rules also prescribe specific conditions for FPIs: their short positions across all contracts in foreign currency-rupee pairs cannot exceed $5 million across exchanges. However, FPIs seeking to take long positions beyond this threshold must establish underlying exposure in Indian debt or equities, including units of equity and debt mutual funds.
The move follows RBI’s circular issued on 10 October, which slashed the threshold for taking positions without establishing an underlying exposure from $100 million to $5 million. This applies to positions taken through authorised dealers (banks) for hedging contracted exposures, as well as positions in currency derivatives across recognised stock exchanges.