Markets regulator Sebi today allowed NRIs to access the exchange traded currency derivatives (ETCD) market to hedge currency risk arising out of their investments in India, a move aimed at providing them additional hedging option. At present, NRIs (non-resident Indians) are permitted to hedge their rupee currency risk through over-the-counter (OTC) transactions with banks. In a circular, Sebi said that NRIs are now permitted to trade in the currency derivatives segment of stock exchanges, subject to certain terms and conditions. These included NRIs would have to designate bank for the purpose of monitoring and reporting their combined positions in the OTC and ETCD segments.
“NRIs may take positions in the currency futures/exchange traded options market to hedge the currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in debt and equity and dividend due and balances held in NRE accounts,” Sebi said. Further, the onus of ensuring the existence of the underlying exposure rest with the NRI concerned. “In the case of any contravention, the NRI shall render itself liable to any action that may be warranted by RBI (Reserve Bank of India) as per the provisions of Foreign Exchange Management Act (FEMA),” Sebi said.
The regulator has asked stock exchanges to take steps to put in place necessary systems for implementation of the new norms. Earlier, the RBI had allowed NRIs to invest in exchange- traded currency derivatives.