Revolutionising Law Reporting !
 |
 |
 |
| Install Now! | Install Now! | Install Now! |
The Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000
Published vide G.S.R. 411(E), dated 3.5.2000, published in the Gazette of India, Extraordinary, Part II, Section 3(i), dated 8.5.2000
Last Updated 28th May, 2020 [11/569]
(ii) They shall come into force on the 1st day of June, 2000.
2. Definitions. - In these regulations, unless the context requires otherwise, -(i) "Act" means the Foreign Exchange Management Act, 1999 (42 of 1999);
(vii) "Schedule" means a Schedule annexed to these regulations;
(x) the words and expressions used but not defined in these regulations shall have the same meanings respectively assigned to them in the Act.
(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.]
3. Prohibition. - Save as otherwise provided in these Regulations, no person in India shall enter into a foreign exchange derivative contract [or currency futures] without the prior permission of the Reserve Bank. [4. 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.] [5. ***]|
OLD LAW ▼ |
|
OLD LAW ▼ |
|
OLD LAW ▼ |
(ii) Notwithstanding anything contained in sub-regulation (i), an authorized dealer bank [* * *]
may permit a company, resident in India [* * *], to enter into contracts in a commodity exchange or market outside India, to hedge the price risk in a commodity [* * *][subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time: [* * *] [* * *](iii) Notwithstanding anything contained in this regulation a unit in the special economic zone ("SEZ") may enter into contracts in a commodity exchange or market outside India to hedge the price risk of the commodity of export/ import, subject to the condition that such contract is entered into on a "stand-alone" basis.
Explanation. - The term "stand-alone" means that the unit in the SEZ is completely isolated from financial contracts with its parent or subsidiary in the mainland or within the SEZ(s) as far as its import/export transactions are concerned.] . [6A. Freight hedge. - (i) Reserve Bank may, on an application made in accordance with such procedure as may be directed by Reserve Bank, permit a person resident in India, subject to such terms and conditions as may be considered necessary, to enter into a freight derivative contract in an exchange or a market outside India to hedge the freight risk such person is exposed to.(ii) Notwithstanding anything contained in sub-regulation (i) an authorized dealer in India [specially authorized in that behalf by the Reserve Bank]
may permit an oil refining company or a shipping company, resident in India, to enter into freight derivative contracts in an exchange or market outside India, to hedge the freight risk which the company is exposed to, subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time: Provided that such authorized dealer category I bank shall exercise the authority subject to directions and guidelines issued to them by the Reserve Bank in that behalf.] 7. Remittance related to a Foreign Exchange Derivative Contract. - An authorized dealer in India may remit outside India foreign exchange in respect of a transaction, undertaken in accordance with these Regulations, in the following cases, namely: -(a) option premium payable by a person resident in India to a person resident outside India,
(b) remittance by a person resident in India of amount incidental to a Foreign Exchange Derivative Contract entered into in accordance with regulation 4,
(c) remittance by a person resident outside India of amount incidental to a Foreign Exchange Derivative Contract entered into in accordance with regulation 5,
(d) any other remittance related to a Foreign Exchange Derivative Contract approved by Reserve Bank.
[8. Remittance related to a Commodity Derivative Contract. - An authorized dealer in India may remit outside India foreign exchange in respect of a transaction, undertaken in accordance with these regulations, in the following cases, namely: -(a) option premium payable by a person resident in India to a person resident outside India;
(b) remittance by a person resident in India of amount incidental to a commodity derivative contract entered into in accordance with regulation 6;
(c) any other remittance related to a commodity derivative contract approved by Reserve Bank.]
SCHEDULE I
(See regulation 4)
Foreign Exchange Derivative Contract [Permissible foreign exchange derivative contract]
A. Forward Contract [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 further that transactions that involve the Rupee but are settled by delivery of a foreign currency shall be undertaken only by an authorised dealer or a person not resident in India and such other persons as may be permitted by the Reserve Bank of I ndi a, i n terms of the directions issued i n this regard by the Reserve Bank of Indiaii. that such person shall share the details of the exposure with the authorised dealer when called upon to do so by the authorised dealer.
2. A person may enter into an exchange traded currency derivative contract on an exchange recognised under section 4 of the Securities Contract (Regulation) Act, 1956. Contracts involving Rupee shall be subject to the following condition(s):i. that such contracts shall be for the purpose of hedging a contracted exposure as defined in these regulations.
ii. that such person shall designate an Authorised Dealer in India for monitoring of their positions taken beyond such position limits as may be prescribed by the Reserve Bank of India to an exchange
iii. that such person shall share the details of the contracted exposure with the Authorised Dealer when called upon to do so by the dealer.]
[AA. Forward Contract in respect of Economic Exposure. - A person resident in India may, subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time, enter into a forward contract with an authorized dealer in India to hedge an economic exposure to exchange risk in respect of such transactions as may be prescribed by the Reserve Bank from time to time.] B. Contract other than Forward Contract 2. (1) A person resident in India who has borrowed foreign exchange in accordance with the provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000 , may enter into an Interest rate swap or Currency swap or Coupon Swap or Foreign Currency Option or Interest rate cap or collar (purchases) or Forward Rate Agreement (FRA) contract with an authorized dealer in India or with a branch outside India of an authorized dealer for hedging his loan exposure and unwinding from such hedges: Provided that -(a) the contract does not involve rupee,
(b) the Reserve Bank has accorded final approval for borrowing in foreign currency,
(c) the notional principal amount of the hedge does not exceed the outstanding amount of the foreign currency loan, and
(d) the maturity of the hedge does not exceed the un-expired maturity of the underlying loan,
(2) A person resident in India, who owes a foreign exchange or rupee liability, may enter into a contract for foreign currency-rupee swap with an authorized dealer in India to hedge long term exposure.
(3) The contract entered into under sub-paragraph 2, if canceled shall not be rebooked or re-entered, by whatever name called.
3.(1) A person resident in India may enter into a foreign currency option contract [not involving the rupee as one of the currencies] with an authorized dealer in India to hedge foreign exchange exposure of such person arising out of his trade : Provided that in respect of cost effective risk reduction strategies like range forwards, ratiorange forwards or any other variable by whatever name called there shall not be any net inflow of premium. Explanation. - The contingent foreign exchange exposure arising out of submission of a tender bid in foreign exchange is also eligible for hedging under this sub-paragraph.(2) A Transactions undertaken under sub-paragraph (1) may be freely booked and/or canceled.
[(C) Writing of standalone options against underlying exposure. - A person resident in India may enter into cross-currency option contract (not involving the rupee as one of the currencies) and/ or foreign currency - rupee option contract authorized dealer against an underlying foreign exchange exposure in respect of a transaction for which sale and/ or purchase of foreign currency is permitted under the Act or the rules or regulations or directions or orders made or issued thereunder subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time.]|
OLD LAW ▼ |
Schedule III
(See regulation 6)
PROCEDURE FOR APPLICATION FOR APPROVAL FOR HEDGING OF COMMODITY PRICE RISK
1. A person resident in India , engaged in export-import trade [or as permitted by the Reserve Bank], who seeks to hedge price risk in respect of any commodity including Gold, may submit an application to the International Banking Division of an authorized dealer giving the following details:(i) A brief description of the hedging strategy proposed, namely :-
(a) description of business activity and nature of risk;
(b) instruments proposed to be used for hedging;
(c) names of commodity exchange and brokers through whom the risk is proposed to be hedged and credit lines proposed to be availed. The name and address of the regulatory authority in the country concerned may also be given;
(d) size/average tenure of exposure and/or total turnover in a year, together with expected peak positions thereof and the basis of calculation.
(ii) copy of the Risk Management Policy approved by the Management covering -
(a) risk identification,
(b) risk measurements,
(c) guidelines and procedures to be followed with respect to revaluation and/or monitoring of positions,
(d) names and designations of the officials authorized to undertake transactions and limits.
(iii) Any other relevant information.
[2. Authorized dealer, after ensuring that the application is supported by documents indicated in paragraph 1, as may be relevant, may forward the application with its recommendations to the Reserve Bank of India, where applicable. In all other cases, the application may be forwarded by the company concerned to an authorized dealer bank authorized to grant permission under sub-regulation (ii) of regulation 6, for consideration.]
