(Updates with details, background, market comments)
MUMBAI, June 20 India's central bank allowed
foreign investors to access the currency futures market for
hedging their currency risks while also partially reversing the
restrictions put last year on banks proprietary trading in the
exchange traded currency futures.
The Reserve Bank of India said foreign portfolio investors
can participate in the currency futures market by taking both
long or short positions to the extent of $10 million without
having to establish any underlying exposure.
"An FPI cannot take a short position beyond USD 10 million
at any time and to take a long position beyond USD 10 million in
any exchange, it will be required to have an underlying
exposure," the central bank said in the release.
For the detailed release, see: (bit.ly/1lETiMQ)
The central bank said the responsibility of ensuring the
existence of the underlying exposure shall rest with the foreign
"I don't think this is going to be a game changer in the
sense of the word, but you have to see it in a wider ambit of
making sure that your markets are becoming more open and more
liberal for international investors," said Hitendra Dave, head
of global markets at HSBC India.
The Reserve Bank of India also partially reversed the
restrictions put on banks' proprietary trading, allowing them to
take long or short positions of up to $10 million without
establishing any underlying exposure.
In July last year, at the peak of the rupee crisis, the
central bank had barred all banks from taking any proprietary
positions in the currency futures market.
For banks who want to take positions over $10 million will
be required to establish the existence of an underlying, the
central bank said in the notification.
For the detailed release, see: (bit.ly/1lb4uzM)
"Banks were the primary market makers in futures, so this
will definitely add to the liquidity in the market. The measures
taken during the crisis last year will gradually be unwound and
we will go back to more normal circumstances," said Ashish
Parthasarthy, treasurer at HDFC Bank.
"The RBI has been able to build up its reserves, rupee has
been stable for some time now, elections are over, so definitely
there is a higher level of confidence in the currency both at
the regulatory-end and across market segments," he added.
(Reporting by Swati Bhat; Additional reporting by Neha
Dasgupta; Editing by Anand Basu)