Indian regulators have toughened rules for derivatives trading in the currency market in a bid to arrest the decline of the country’s currency.
The rupee had lost INR0.39 to close at INR60.61 after touching a fresh life-time low of INR61.21 against the US currency on July 8.
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In a notification, the Reserve Bank of India (RBI) banned banks from proprietary trading in domestic currency futures and the exchange-traded options market.
Though the country’s central bank has no direct oversight of exchange trading, it is concerned that the speculative nature of the contracts will lead to a downward spiral in the spot exchange rate.
On June 26, the RBI asked overseas funds for proof that individual accounts were seeking to limit currency risk on securities by using derivatives. The central bank has also enquired about foreign lenders’ open positions involving the rupee.
The Securities and Exchange Board of India (SEBI) has also increased the margin requirement on the domestic dollar-rupee forward trade to 100% of the traded amount. This means investors will have to shore up the full amount of the transaction at the time of the trade itself and not during settlement.
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By GlobalDataSEBI also imposed fresh restrictions on open interest on USD-INR trades.
"In consultation with RBI and in view of the recent turbulent phase of extreme volatility in USD-INR exchange rate, it has been decided to curtail position limits and increase margin requirements for Currency Derivatives," the SEBI said.
