RBI notifies the Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020

Mar 09, 2020 | by Avantis RegTech Legal Research Team


Finance & Taxation Compliance

The Reserve Bank of India (RBI) on February 18, 2020 notifies the Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020 to further amend the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000.

The amendments in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 are as under:

 The Definitions “authorised dealer” and “Foreign exchange derivative contract” has been substituted.

 Addition of certain definitions:

i. ‘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.

ii. ‘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.

iii. ‘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.

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

v. ‘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.

 Under para 2 which specifies Definitions, existing sub-paras (iii) Cash delivery, (iv) Forward Contract, (va) a transaction which involves at least one foreign currency other than currency of Nepal or Bhutan, or, (vi) Registered Foreign Institutional Investor (FII), (viii) Spot delivery, (ix) Tom delivery and (xi) shall stand deleted.

 Para 4 which specifies the provision regarding Permission to a person resident in India to enter into a Foreign Exchange Derivative contract: 

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.

 existing paras:

5, 5A, 5B, 5C which are related to permission to resident and non-resident entities, person to enter into a Foreign Exchange Derivative contract shall stand deleted.

 Under para 7 (c) which specifies the provision regarding remittance related to a Foreign exchange derivative contract, the reference to Regulation 5 shall stand replaced by Regulation 4.

These regulations will come into force from the date of their publication in the Official Gazette (March 03, 2020).

[Notification No. FEMA.398/RB-2020]


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