Authorised banks and standalone primary dealers access the foreign exchange market for market making, balance sheet management and hedging of risks.
Photograph: Francis Mascarenhas/Reuters
Key Points
- An authorised dealer may also undertake transactions on ETPs outside India
- They can borrow and lend in foreign currency
- Authorised dealer may undertake NDDCs
The Reserve Bank on Tuesday proposed greater flexibility to authorised persons to undertake foreign exchange transactions for hedging their exposures, balance sheet management and market-making, as well as to ease reporting obligations, after a review of the current regulations.
Authorised banks and standalone primary dealers access the foreign exchange market for market making, balance sheet management and hedging of risks.
On Tuesday, the central bank issued draft directions on ‘Foreign Exchange Dealings of Authorised Persons’ aimed at providing greater flexibility to authorised persons to deal in products and undertake foreign exchange transactions for hedging their exposures, balance sheet management and market-making, as well as to ease reporting obligations.
What RBI proposes
It proposes that an authorised dealer may undertake permitted foreign exchange transactions with other authorised dealers for hedging its exposures, balance sheet management, market-making and proprietary positions.
They can borrow and lend in foreign currency, it said.
Further, an authorised dealer may undertake non-deliverable derivative contracts (NDDCs) involving rupee with other authorised dealers, said the draft on which the RBI has invited comments by March 10.
“An authorised dealer may undertake foreign exchange derivative contracts and foreign currency interest rate derivative contracts on electronic trading platforms (ETPs) authorised by the Reserve Bank,” it said.
An authorised dealer may also undertake transactions on ETPs outside India subject to certain conditions, including that the ETP operator should incorporated/set up in a country which is a member of the Financial Action Task Force (FATF), it said.
What the draft says
The draft further said that a designated bank under the Gold Monetisation Scheme, 2015 and a bank which is allowed to enter into forward gold contracts with its constituents in India may hedge its price risk of gold using exchange-traded and OTC hedging products in overseas markets.
“While using products involving options, the bank may ensure that there is no net receipt of premium, either direct or implied,” it added.
Authorised persons mean authorised dealer category-I banks and specific standalone primary dealers, among others.
