Saturday, October 10, 2026
The Reserve Bank of India (RBI) on October 10 announced regulatory measures for the foreign exchange market, including restrictions on rebooking cancelled foreign exchange derivative contracts, a reduction in transaction thresholds and the introduction of a Foreign Exchange Risk Reserve (FERR). The measures were announced through two circulars, A.P. (DIR Series) Circular No. 25 and A.P. (DIR Series) Circular No. 26, with the stated objective of ensuring the orderly functioning of the foreign exchange market. Restrictions on rebooking cancelled contracts Authorised dealers will not be permitted to allow users to rebook any foreign exchange derivative contract involving the Indian rupee, whether deliverable or non-deliverable, if it has been cancelled with any authorised dealer after the issuance of the directions.
Rollover of foreign exchange derivative contracts on maturity will continue to be permitted, subject to existing regulatory provisions. Threshold reduced to $5 million The RBI has reduced the threshold for undertaking foreign exchange derivative transactions to hedge contracted exposures without establishing the existence of the underlying exposure from $100 million to $5 million equivalent across all authorised dealers. The corresponding threshold for taking positions in exchange-traded currency derivatives involving the rupee, without establishing the existence of underlying exposure, has also been reduced from $100 million to $5 million equivalent across all recognised stock exchanges taken together.
Additional documentation requirement Authorised dealers will be required to obtain and retain an undertaking from users entering into rupee-involving foreign exchange derivative contracts to hedge contracted exposures. The undertaking must confirm that the same underlying exposure has not been hedged with any other authorised dealer. Foreign Exchange Risk Reserve introduced The RBI has introduced a Foreign Exchange Risk Reserve requirement for rupee-involving foreign exchange derivative contracts with a notional value exceeding $2 million equivalent.
Authorised dealers will be required to maintain a cash reserve with the RBI equal to 20% of the rupee equivalent of the notional amount of each such transaction. The reserve requirement will apply to rupee-involving foreign exchange derivative contracts undertaken to hedge current account exposures where the user purchases foreign currency against the rupee. The RBI said the measures are intended to strengthen market discipline, ensure appropriate risk management and maintain an orderly and transparent foreign exchange market.
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Source: CNBC TV18
