𝐑𝐁𝐈 𝐢𝐬𝐬𝐮𝐞𝐬 𝐮𝐩𝐝𝐚𝐭𝐞𝐝 𝐝𝐢𝐫𝐞𝐜𝐭𝐢𝐨𝐧𝐬 𝐟𝐨𝐫 𝐜𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐨𝐟 𝐌𝐚𝐫𝐠𝐢𝐧 𝐢𝐧 𝐃𝐞𝐫𝐢𝐯𝐚𝐭𝐢𝐯𝐞𝐬 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐬

The Reserve Bank of India (RBI) has recently issued updated Directions, replacing prior circulars, aimed at streamlining margin posting and collection for approved derivative contracts involving both residents and non-residents of India. Effective immediately, these Directions are applicable to Authorized Dealer Category-I banks and Category-III Standalone Primary Dealers, in accordance with the Foreign Exchange Management Act, 1999.

Derivative contracts involve financial agreements that derive their value from underlying assets such as stocks, currencies, and commodities. In derivative trading, maintaining a portion of the outstanding position’s value as cash, known as ‘margin money’, in the trading account is crucial to manage risk exposure on the stock exchanges.

Authorized dealers under the updated directions are now permitted to handle margin posting and collection, as well as interest transactions, for permitted derivative contracts with non-residents, including transactions of their overseas branches and IFSC Banking Units, as outlined by the RBI.

The RBI specifies that margins posted and collected in India should be in Indian currency, freely convertible foreign currency, or specific debt securities issued by the Indian Central Government, State Governments, or listed Rupee bonds with AAA credit ratings issued by residents in India. Conversely, margins posted and collected outside India should be in freely convertible foreign currency or debt securities issued by foreign sovereigns with specified credit ratings by recognized rating agencies. In cases where different ratings are provided by two or more credit rating agencies, the lowest rating shall be considered.

A copy of the RBI Directions is enclosed hereinbelow.

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