Mumbai, February 17 The Reserve Bank proposed greater flexibility for authorized persons to engage in foreign exchange transactions for hedging their exposures, managing their balance sheets, and facilitating market-making, as well as to ease reporting requirements, following a review of the existing regulations.
Authorized banks and standalone primary dealers access the foreign exchange market for market-making, balance sheet management, and hedging risks.
On Tuesday, the central bank issued draft guidelines on "Foreign Exchange Dealings by Authorized Persons," aimed at providing greater flexibility for authorized persons to trade in products and undertake foreign exchange transactions for hedging their exposures, managing their balance sheets, and facilitating market-making, as well as to ease reporting requirements.
It proposes that an authorized dealer may undertake permitted foreign exchange transactions with other authorized dealers for hedging their exposures, managing their balance sheets, facilitating market-making, and managing proprietary positions.
They can borrow and lend in foreign currency, it said.
Furthermore, an authorized dealer may undertake non-deliverable derivative contracts (NDDCs) involving the rupee with other authorized dealers, according to the draft, which the RBI has invited comments on by March 10.
"An authorized dealer may undertake foreign exchange derivative contracts and foreign currency interest rate derivative contracts on electronic trading platforms (ETPs) authorized by the Reserve Bank," it said.
An authorized dealer may also undertake transactions on ETPs outside India, subject to certain conditions, including that the ETP operator should be incorporated/set up in a country that is a member of the Financial Action Task Force (FATF), it said.
The draft further stated that a designated bank under the Gold Monetization Scheme, 2015, and a bank allowed to enter into forward gold contracts with its constituents in India, may hedge its price risk of gold using exchange-traded and over-the-counter (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.
Authorized persons mean authorized dealer category-I banks and specific standalone primary dealers, among others.
