Traders Said to Lobby for Rethinking of Rupee Derivatives Rule

Ronojoy Mazumdar and Saikat Das
·1 min read

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Indian traders are planning to push for reconsideration of a rule that requires currency derivatives to have an underlying exposure, according to people familiar with the matter.

The broker’s association intends to appoint a consultant to help make their case, one of the people said, asking not to be identified as the matter is private.

Traders approached the Securities and Exchange Board of India last week, who advised them to reach out to the Reserve Bank of India, which oversees foreign-exchange management, and the government, the people said.

The central bank dealt a significant blow to the booming derivatives market in late March by reaffirming a rule that permits the use of rupee forex derivatives only for hedging. The directive effectively ousts traders and speculators, who comprise the bulk of the activity in a market where volumes reached $5 billion per day.

Read more: FX Derivatives Fiasco Puts Spotlight on Regulatory Risk in India

The RBI in its April monetary policy reiterated that participants must have actual foreign-exchange exposure and extended the implementation of the deadline for its currency derivatives rules by about a month to May 3.

Efforts to urge the authorities to reconsider the rules and their implementation will have to wait until after India’s national election concludes in June, the people said.

The average daily turnover in currency futures and options slumped nearly 90% to 206.5 billion rupees ($2.5 billion) in April from March on the National Stock Exchange, according to exchange data.

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