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Permitting writing of options against contracted exposures by Indian Residents

FEMA - 78 - Dated:- 23-6-2016 - RBI/2015-16/431 A.P. (DIR Series) Circular No. 78 June 23, 2016 To All Category - I Authorised Dealer Banks Madam / Sir, Attention of Authorised Dealer Category - I (AD Cat - I) banks is invited to Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 (Notification No. FEMA/25/RB-2000 dated May 3, 2000) as amended from time to time and A.P. (DIR Series) circular no. 32 dated December 28, 2010 - Comprehensive Guidel .....

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n order to encourage participation in the Over the Counter (OTC) currency options market and improve its liquidity, it has been decided to permit resident exporters and importers of goods and services to write (sell) standalone plain vanilla European call and put option contracts against their contracted exposure, i.e. covered call and covered put respectively, to any AD Cat-I bank in India subject to operational guidelines, terms and conditions given in Annex I to this circular. 3. Necessary am .....

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lar have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law. 6. These guidelines will be reviewed after one year based on experience. Yours faithfully (R Subramanian) Chief General Manager Annex I to A.P. (DIR Series) Circular No. 78 dated June 23, 2016 Writing of Covered Call and Put Currency Option contracts by Indian exporters and importers of goods and s .....

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f India (ICAI). 2. Product a. Covered Call: A resident exporter may write (sell) a standalone plain vanilla European call option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of exports of goods and services from India. b. Covered Put: A resident importer may write (sell) a standalone plain vanilla European put option contract to an AD Category-I bank in India against the cover of contracted exposure arising out of imports of goods and services i .....

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governing derivative products in general and structured products in particular of the circular mentioned in para. (2)(d) above and subsequent amendments thereof will apply, mutatis mutandis, to covered options. b. AD Category-I banks may enter into covered options with their exporter or importer constituents only after obtaining specific approval in this regard from their competent authority (Board / Risk Committee / ALCO) and as per the terms and conditions contained in A.P. (DIR Series) Circul .....

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d options may be written against either a portion or the full value of the underlying. e. AD Cat-I banks shall treat the exposures against which a covered option has been written as an unhedged exposure . Accordingly, the guidelines issued vide Reserve Bank Circular DBOD.No.BP.BC. 85/21.06.200/2013-14 dated January 15, 2014 on Capital and Provisioning Requirements for Exposures to entities with Unhedged Foreign Currency Exposure shall apply. f. Covered option contracts may be written for a perio .....

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ures - Forward Foreign Exchange Contracts, Cross Currency Options (not involving Rupee) and Foreign Currency-INR Options of the A.P. (DIR Series) No. 32 dated December 28, 2010, as amended from time to time, shall be applicable to covered options to the extent relevant. j. Except as mentioned in these guidelines, covered options shall not be undertaken in combination with any other derivative or cash instrument. k. As provided under Comprehensive Guidelines on Derivatives, as amended from time t .....

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contracts entered by Residents in India, as laid down under Section (I)(B) of the A.P. (DIR Series) No. 32 dated December 28, 2010, as amended from time to time, shall be applicable, mutatis mutandis, to covered options. Annex II to A.P. (DIR Series) Circular No. 78 dated June 23, 2016 Notification No. FEMA.365/2016-RB June 1, 2016 Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2016 G.S.R. 571(E).-In exercise of the powers conferred by clause (h) of .....

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