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Derivative trade limit on Currency raised

The Market Regulator has considerably raised the exposure limit under exchange-traded currency derivatives trading for residents and FPIs to USD 100 million across all currency pairs involving the rupee. This step will facilitate entities engaged in Forex transactions to manage currency risks in in good health.  The decision comes after the RBI in February raised these limits, beyond which market players would be needed to establish proof of underlying exposure in the currency derivatives sector.

Market Regulator Sebi said in the circular that Domestic clients and Foreign Portfolio Investors may take long or short positions without having to establish existence of underlying exposure, upto a single limit of USD 100 million equivalents, across all currency pairs involving Rupee, put together and combined across all the stock exchanges.

The Sebi has asked FPIs to make sure that their short positions at all exchanges across all contracts in foreign currency and rupee pairs do not exceed USD 100 million.

The responsibility of complying with the provisions of this decision rests with the participant in the exposure limit exchange traded currency derivatives market.

In the event of any breach, the participant shall be legally responsible to any action that may be warranted according to the provisions of Foreign Exchange Management Act.

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