The Securities and Exchange Board of India (SEBI) will take into consideration the industry’s request to ease the regulations for currency derivatives trade in order to facilitate a complete hedge of commodity prices.
At the MCX event, Anup Gupta, chairman, BSE Brokers’ Forum, highlighted the existence of a gap in hedging. “We can take our price structure from exchanges such CME and LME and create notional price on our exchanges, but that hedging is incomplete because of not being able to hedge the foreign currency,” he said.
Gupta said he has informed the SEBI chairman that because of this gap, the entire hedging is just one-legged. “The chairman has been kind enough to say that they would discuss this with RBI — if we can do a complete hedge and that would be the next step forward to do hedging on the metal exchanges,” he added.
Sharp drop in volumes due to current rules
Abhilash Koikkara, head of forex and commodities at Nuvama Professional Clients Group, said that since now trading in currency derivatives is not allowed without any contracted underlying, the volumes have dropped by around 85% to 90%. “Even corporates and clients with contracted exposures are finding it difficult to hedge as the liquidity is very thin,” he said, adding that unless there is a change in this regulation, the volumes will continue to be muted and complete hedge won’t be possible for commodity clients too.
Effective May 3 of last year, the Reserve Bank of India (RBI) mandated the currency derivatives traders to compulsorily have an underlying contracted exposure to foreign currency to arrest volatility in the rupee.
Industry urges regulatory review for complete hedging
While traders are not required to provide evidence of underlying exposure for positions up to $100 million, they must confirm the existence of such exposure.
After the initial announcement of this rule, most of the retail traders had wound up their positions leading to a drop in volumes. Data show that the average daily turnover in the segment on the NSE has fallen to Rs 2,028.83 crore in September 2025 compared with Rs 12,100.38 crore last April. On the BSE, it has fallen to nil in September from Rs 1,481.46 in April 2024.