Foreign Currency

Zerodha tells its clients to close FX derivatives position before April 5 to comply with new RBI norms

Stock broking company Zerodha, on April 2, issued a notification informing its clients to close FX derivatives position before April 5 to comply with new Reserve Bank of India (RBI) norms.

“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,” the firm said in a post on X.

Also read: ‘Regulatory risk…the biggest risk’: Zerodha’s Nithin Kamath on RBI’s latest guidelines on currency derivatives

Effective April 4, 2024, the users can exit their current positions but will not be allowed to take fresh positions in currencies. If users wish to take fresh positions, they will have to submit the declaration form.

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 firm further explained that for traders with exposures exceeding $100 million (notional contract value), it is mandatory to designate a custodian participant or an authorized dealer. Conversely, for those with smaller exposures, a simple declaration stating currency trading is for hedging contracted exposure suffices.

Failure to provide this declaration will result in the inability to initiate new positions in the currency segment starting April 4th. However, exiting existing positions remains permissible. It is advised to closely monitor open positions as liquidity may diminish leading up to April 5th, 2024, when the RBI circular takes effect.

Also read: India PC market to double in 5 years if economy target met: HP’s Dasgupta

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.

How 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.

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