TMI BlogRisk Management and Inter-bank Dealings Hedging of foreign exchange riskX X X X Extracts X X X X X X X X Extracts X X X X ..... rom the date that these directions come into effect. 3. Necessary amendments ( Notification No.FEMA.398/RB-2020 dated February 18, 2020 ) to Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations, 2000 ( Notification No.FEMA.25/RB-2000 dated May 3, 2000 ) (Regulations) have been notified in the Official Gazette vide Gazette Id no. CG-MH-E-06032020-216549 dated March 3, 2020, a copy of which is annexed to this circular. These regulations have been issued under clause (h) of sub-Section (2) of Section 47 of FEMA, 1999 (42 of 1999). 4. The directions shall come into effect from June 1, 2020 and replace the existing directions in Part A - Section I and II and Part D of the Master Direction on Risk Management and Interbank Dealings dated July 5, 2016, as amended from time to time. 5. The following reports prescribed in Part E of the Master Directions on Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended from time to time, shall stand withdrawn from the date that these directions come into effect. Cross Currency Derivative Transactions (Half yearly) Annex IV Report on Booking of Forward Contracts on Past Performance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and Exchange Board of India Act, 1992 (15 of 1992). 'IRDAI' shall mean the Insurance Regulatory and Development Authority of India established under the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999). 'PFRDA' shall mean the Pension Fund Regulatory and Development Authority established under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013). Net worth shall have the same meaning as defined in Section 2(57) of the Companies Act, 2013 (as amended). Non-deliverable derivative contract (NDDC) means a foreign exchange derivative contract involving the Rupee, entered into with a person resident outside India and which is settled without involving delivery of the Rupee. Exchanges shall mean recognised stock exchange (excluding stock exchanges set up in International Financial Services Centres (IFSCs)) and shall have the meaning assigned in section 2(f) of the Securities Contracts (Regulations) Act, 1956 . 2. Directions for Authorised Dealers A. General directions i. Authorised Dealers shall classify a user as per the User Classification Framework provided at Annex II to this directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Appropriateness policy prescribed vide circular no.DBOD.No.BP.BC.86/21.04.157/2006-07 dated April 20, 2007 on Comprehensive Guidelines on Derivatives (as amended from time to time). vi. Authorised Dealers specifically designated by a user for the purpose of monitoring of transaction on exchanges shall ensure that all positions of the user in all contracts involving INR on all the exchanges put together, is backed by a contracted exposure to INR. vii. Authorised Dealers may call for such documents from the eligible users as they deem necessary for complying with the requirements of these directions. viii. Authorised Dealers, unless permitted by Reserve Bank to run books in contracts not involving INR, shall offer such contracts on a fully covered back-to-back basis. ix. Existing contracts booked under the provisions of the earlier direction may be continued till the date of their expiry. x. Banks in India having an Authorised Dealer Category-1 license under FEMA, 1999 , and operating International Financial Services Centre (IFSC) Banking Units (IBUs) (as specified in circular no.RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as amended fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shall render itself liable to any action under the Foreign Exchange Management Act (FEMA), 1999. Annex - II User Classification Framework 1. User Classification i. For the purpose of offering derivative contracts to a user, the Authorised Dealer shall classify the user either as a retail user or as a non-retail user. ii. The following users shall be eligible to be classified as non-retail users: All entities regulated by a financial sector regulator subject to general or special permission of the concerned regulator Exim Bank, National Bank of Agriculture and Rural Development (NABARD), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI) Companies with a minimum net worth of ₹ 500 crores Persons resident outside India other than individuals iii. Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user. iv. Any user who is otherwise eligible to be classified as a non-retail user shall have the option to get classified as a retail user. 2. Directions in case of retail users Eligible products Forwards, purchase of call and put options (Onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) the text of the definition of authorised dealer at sub para (ii) shall be substituted by the following: 'authorised dealer' means a person authorised as such by Reserve Bank under sub-section (1) of section 10 of the Act; ii. In para 2 (Definitions) of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) the existing definition of 'Foreign exchange derivative contract at sub para (v) shall be substituted by the following: Foreign exchange derivative contract means a financial contract which derives its value from the change in the exchange rate of two currencies at least one of which is not Indian Rupee or which derives its value from the change in the interest rate of a foreign currency and which is for settlement at a future date, i.e. any date later than the spot settlement date, provided that contracts involving currencies of Nepal and Bhutan shall not qualify under this definition. iii. In para 2 (Definitions) of the Foreign Exchange Management (Foreign Exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RB-2000 dated May 3, 2000 ) shall stand deleted. vii. In sub-para (c) of para 7(Remittance related to a Foreign exchange derivative contract) , the reference to Regulation 5 shall stand replaced by Regulation 4. viii. Schedule I of the of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) shall be renamed as Permissible foreign exchange derivative contract ix. The existing text under Schedule I of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) shall be substituted by the following: 1. A person, whether resident in India or resident outside India, may enter into a foreign exchange derivative contract with an authorised dealer. Contracts involving Rupee subject to the following condition(s): i. that such contracts shall be for the purpose of hedging a contracted or anticipated exposure Provided that contracts not based on a contracted or anticipated exposure may be undertaken, as may be permitted by the Reserve Bank of India Provided fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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