No More Cancellation and Rebooking of Forex Derivatives before Maturity, RBI seeks to Curb Fluctuations

1. Background

· The RBI has revised requirements under the Master Direction – Risk Management and Inter-Bank Dealings, dated 5 July 2016, in view of evolving market conditions.

· The Directions come into force with immediate effect.

2. Cancellation and Rebooking of Derivative Contracts

· Authorised Dealers (ADs) shall not permit rebooking of any foreign exchange derivative contract involving INR, whether deliverable or non-deliverable, that has been cancelled with any Authorised Dealer after issuance of these Directions.

· Rollover on maturity is permitted, subject to compliance with the provisions of the Master Direction.

3. Reduction in Threshold for Positions Without Establishing Underlying Exposure

- The threshold for both the following facilities has been reduced from USD 100 million to USD 5 million equivalent, based on notional value outstanding at any point in time:

· Hedging contracted exposure: Positions across all Authorised Dealers without establishing the existence of the underlying exposure.

· Positions across INR currency pairs: Long or short positions without establishing underlying exposure, combined across all recognised stock exchanges and all currency pairs involving INR.

4. Additional Documentation Requirement

· When offering an INR foreign exchange derivative contract to hedge contracted exposure, an AD must obtain and retain an undertaking from the user confirming that the same underlying exposure has not been hedged with another AD.

· If the exposure is hedged in parts through multiple ADs, the undertaking must clearly specify the amounts already booked with other ADs.

· The undertaking may also be obtained as part of the deal confirmation.

· This is in addition to other documents required under the Master Direction.

5. Responsibility of Authorised Dealers

· ADs are responsible for ensuring compliance with the Directions, including verifying the existence of the underlying exposure.

· Relevant documents must be obtained and retained for at least two years.

6. Effective Date

- The Directions are effective immediately from the date of issuance.

7. Legal Basis

- Issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999, and Section 45W of the Reserve Bank of India Act, 1934.

Effect of these Directions

· Prohibits rebooking of cancelled INR foreign exchange derivative contracts.

· Permits rollovers on maturity, subject to existing rules.

· Reduces the relevant thresholds for positions without establishing underlying exposure from USD 100 million to USD 5 million.

· Strengthens documentation, verification and record-retention obligations for Authorised Dealers.

[A.P. (DIR Series) Circular No. 25 dated October 10, 2026]

Risk Management and Inter-Bank Dealings

Attention of Authorised Dealers is invited to the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to time.

2. In view of evolving market conditions, it has been decided as under:

Cancellation and rebooking / rollovers of foreign exchange derivative contracts

(a) An Authorised Dealer shall not permit users to rebook any foreign exchange derivative contract involving the INR, whether deliverable or non-deliverable, which has been cancelled with any of the Authorised Dealers, after the issuance of these Directions.

(b) An Authorised Dealer may, however, continue to permit users to rollover foreign exchange derivative contracts on maturity, subject to compliance with the provisions of the Master Direction ibid.

Threshold limit for taking positions without requirement to establish the existence of underlying

(c) In terms of the proviso to paragraph 2.4 (i) of Section I of Part A of the Master Direction ibid, Authorised Dealers are permitted to allow users to take positions upto USD 100 million equivalent of notional value (outstanding at any point of time), across all Authorised Dealers, for hedging contracted exposure without the requirement to establish the existence of underlying exposure. Further, in terms of paragraph 3.4 (i) of Section I of Part A of the Master Direction ibid, a user is allowed to take positions (long or short), without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all Recognized Stock Exchanges. The threshold for each of the above facilities shall, henceforth, be USD 5 million equivalent of notional value (outstanding at any point of time).

Requirement for Additional Documentation

(d) An Authorised Dealer shall, at the time of offering a foreign exchange derivative contract involving INR to a user to hedge a contracted exposure, obtain and retain an undertaking from the user that the same underlying exposure has not been hedged with any other Authorised Dealer. Where the same exposure is being hedged in parts with more than one Authorised Dealer, the details of amounts already booked with other Authorised Dealer/s should be clearly indicated in the undertaking. This undertaking can also be obtained as a part of the deal confirmation. This shall be in addition to any other document(s) which the Authorised Dealers may call for from users in terms of paragraph 2.4 (iv) of Section I of Part A of the Master Direction ibid and for complying with the requirements of these Directions.

3. It shall be the responsibility of an Authorised Dealer to ensure compliance of these directions including the existence of underlying exposure, for which it will take necessary documents and retain them for a period not less than two years.

4. These Directions shall come into force with immediate effect.

5. These directions are issued in exercise of the powers conferred by Sections 10(4) and 11(1) of the FEMA, 1999, and Section 45W of the Reserve Bank of India Act, 1934, and are without prejudice to permissions / approvals, if any, required under any other law.