The Reserve Bank of India (RBI) has clarified that foreign institutional investors (FII) will need a mandate from holders of participatory notes (PN) and overseas derivative instruments (ODI) to hedge currency risks based on their exposure.
?If an FII wishes to enter into a hedge contract for the exposure relating to that part of the securities held by it against which it has issued any PN/ODI, it must have a mandate from the PN/ODI holder for that purpose,? said the RBI in a notification. The RBI had, on June 26, stated that FIIs wishing to hedge currency exposure of one of its sub-account holders, must have a mandate from the sub-account holder. However, market participants had sought clarifications on whether this condition applies to PN and ODI holders as well.
The clarification is likely to help curb speculation further as FIIs will need to ensure that all trades related to P-Note exposures are for genuine customer requirements, said traders.