RBI Notifies — Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020

The Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020.

Reserve Bank of India notifies Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020.

2. Amendments

i. 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 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 subsection (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 Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000 dated May 3, 2000) the following may be added after the existing definitions:

(xii) ‘Contracted exposure‘ refers to currency risk arising on account of current and capital account transactions permissible under the Act or any rules or regulations made thereunder, that have been entered into.

(xiii) ‘Anticipated exposure‘ refers to currency risk arising on account of current and capital account transactions permissible under the Act or any rules or regulations made thereunder, that are proposed to be entered into in future.

(xiv) ‘Currency risk‘ means the potential for loss on account of movement in exchange rates of Rupee against a foreign currency or on account of movement in exchange rates of one foreign currency against another or on account of movement of interest rate applicable to a foreign currency.

(xv) ‘Hedging‘ means the activity of undertaking a foreign exchange derivative transaction to manage currency risk.

(xvi) ‘Exchange-traded currency derivatives‘ means a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract.

iv. 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 sub-paras (iii), (iv), (va), (vi), (viii), (ix) and (xi) shall stand deleted.

v. In para 4 (Permission to a person resident in India to enter into a Foreign Exchange Derivative contract) of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 (Notification No. FEMA 25/RB-2000 dated May 3, 2000) the existing text shall be replaced with the following:

“Permission to enter into a foreign exchange derivative contract – A person, whether resident in India or resident outside India, may enter into a foreign exchange derivative contract or exchange-traded currency derivative contract in accordance with provisions contained in Schedule I of this regulation.

*Please read the detailed notification here: Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020


Reserve Bank of India

[Notification dt. 18-02-2020]

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