Sebi Tightens Rupee Derivative Norms To Align With RBI's $5 Million Threshold

(MENAFN- Live Mint) Mumbai: The Securities and Exchange Board of India (Sebi) has implemented a uniform $5 million limit on outstanding positions in rupee-related currency derivatives that domestic clients and foreign portfolio investors (FPIs) can hold across currency pairs and stock exchanges without establishing an underlying exposure.

In a circular issued on Thursday, the market regulator revised the existing provisions governing positions in currency derivatives, aligning them with the Reserve Bank of India's (RBI) revised thresholds announced on 10 October. The move brings all rupee-related currency pairs under a single aggregate limit, rather than treating positions in individual contracts separately. RBI had previously set the limit for rupee-related currency derivatives exposure at $100 million.

Under the revised framework, domestic clients and FPIs can take long or short positions of up to $5 million in notional value, outstanding at any point, across all currency pairs involving the Indian rupee and all recognised stock exchanges combined, without having to establish an underlying exposure. Such exposure could include a foreign currency payment to be made or a receivable to be collected that needs to be hedged.

Also Read | Sebi allows mutual fund schemes to net cash market fund settlements

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 equity securities, including units of equity and debt mutual funds.

Domestic clients, meanwhile, can take positions exceeding the $5 million threshold, subject to conditions specified under the RBI's Master Direction on Risk Management and Inter-Bank Dealings and its circular dated 10 October 2026.

Underlying exposure refers to an actual financial requirement or investment that supports a currency derivative position. For instance, an importer with a future dollar payment obligation or an exporter expecting foreign currency receipts may use derivatives to hedge the associated exchange-rate risk.

Also Read | LTCG tax relief on cards? FM heeds concerns amid SEBI, FICCI push

The revised provisions replace the relevant threshold limits under Sebi's Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024. The regulator said all other requirements, terms and conditions under the earlier master circular would remain unchanged, except where modified by the latest circular or otherwise directed by Sebi.

Stock exchanges and clearing corporations have been directed to put the necessary systems in place, make consequential amendments to their rules and regulations, and communicate the revised provisions to stockbrokers and clearing members.

The circular follows RBI's broader revision of rules governing foreign exchange derivatives involving the rupee, which also covers requirements relating to cancellation and rebooking of contracts and documentation for hedging contracted exposures.

MENAFN05112026007365015876ID1111920787