Description

NSE clarifies rules on documentary evidence and exposure limits for Exchange-Traded Currency Derivatives (ETCDs) involving INR, reminding members of RBI's hedging framework and the USD 100 million threshold for positions without documentary evidence.

Summary

NSE has issued a clarification (Circular Ref. No. 10/2026) to all members regarding documentary evidence requirements and exposure limits for Exchange-Traded Currency Derivatives (ETCDs) involving INR. This is a continuation of earlier circulars NSE/CD/61402 and NSE/CD/61478, reminding members of RBI’s regulatory framework for hedging foreign exchange risks.

Key Points

  • Participants with valid underlying contracted exposure can trade ETCDs involving INR up to a single combined limit of USD 100 million equivalent across all Recognized Stock Exchanges without submitting documentary evidence.
  • The USD 100 million limit is aggregate across all recognized stock exchanges combined.
  • Participants must ensure a valid underlying contracted exposure exists that has not been hedged using any other derivative contract.
  • Participants must be able to establish the existence of valid underlying exposure if required by regulators.
  • Positions exceeding USD 100 million (or equivalent) in INR-involving contracts must comply with Section 3.4 of the RBI circular on Risk Management and Inter-Bank Dealings.

Regulatory Changes

No new regulatory changes are introduced. This circular reiterates and clarifies existing requirements based on:

  • RBI notification on ‘Risk Management and Inter-Bank Dealings - Hedging of foreign exchange’ dated January 05, 2024
  • RBI press release on Exchange Traded Currency Derivatives dated April 04, 2024
  • NSE Circulars NSE/CD/61402 and NSE/CD/61478

Compliance Requirements

  • Members must remind their participants/clients of the USD 100 million combined exposure limit across all exchanges for documentary evidence exemption.
  • Participants must maintain records of valid underlying contracted exposure even when trading below the USD 100 million threshold.
  • Participants exceeding USD 100 million in aggregate INR-related ETCD positions must comply with Section 3.4 of RBI’s Risk Management and Inter-Bank Dealings circular.
  • Underlying exposures used for ETCDs must not be simultaneously hedged through any other derivative contract.

Important Dates

  • Circular Date: March 16, 2026
  • RBI Hedging Framework Notification: January 05, 2024
  • RBI Press Release on ETCDs: April 04, 2024
  • No new effective dates introduced by this circular.

Impact Assessment

This circular has a moderate compliance impact on members and participants active in the currency derivatives segment. It primarily affects institutional participants and large traders who hold or intend to hold aggregate ETCD positions involving INR exceeding USD 100 million across exchanges. Retail and smaller participants trading below the threshold are largely unaffected but should still maintain records of underlying exposure. Members must ensure their clients are aware of the documentary evidence obligations and the restriction against double-hedging the same underlying exposure.

Impact Justification

Reminder circular clarifying existing RBI rules on ETCDs involving INR; no new regulatory changes introduced, but important compliance guidance for members trading currency derivatives above USD 100 million threshold.