“As per RBI guidelines, traders need to have exposure to the underlying currency to trade in currency derivatives on the stock exchange. Please ensure to close your open position before 05th April 2024 to be compliant with RBI rules,” Zerodha said in a post on X.
From Thursday, April 4, the users will be able to exit their existing positions but will not be allowed to take any fresh positions in the currency segment. The users will have to submit the declaration form to take fresh positions.
The RBI has mandated traders to compulsorily have an underlying contracted exposure to foreign currency if they want to trade in the currency derivatives segment.
The company also mentioned that traders with exposures greater than $100 million (notional contract value), will be required to appoint a custodian participant or an authorised dealer. For traders with a smaller exposure, a declaration stating trading currencies for hedging contracted exposures will suffice.
If the user fails to provide a declaration, then they will not be allowed to take any fresh positions in the currency segment beginning Thursday, April 4, even as they will be permitted to exit existing positions. It is advised to closely monitor open positions as liquidity may diminish leading up to April 5, 2024, when the RBI circular takes effect, the company added.
According to RBI guidelines, contracted exposure means currency risk arising on account of current or capital account transactions permissible under the FEMA 1999 or any rules or regulations made thereunder, that have been entered into.
In a post on X, Zerodha CEO Nithin Kamath said he has earlier talked about regulatory risk being the biggest risk for stock brokers by far. “The RBI has its own reasons for restricting unhedged currency derivatives, but this means the death of currency derivative trading on stock exchanges by retail traders,” he added.
How to submit the declaration form
On its website, the company explained the steps to submit the declaration form:
- Download the declaration form (PDF)
- Sign the declaration form (e-sign/wet sign)
- Create a ticket here to submit the soft copy of the signed form.