RBI Draft: Authorised Dealers on Offshore Trading Platforms
Why in the news
The RBI released draft directions to loosen foreign exchange dealing norms. Authorised dealers could trade on electronic platforms located abroad, under safeguards.
Aims
- Deepen the forex and derivatives market.
- Match global electronic trading practice.
- Improve efficiency and liquidity.
- Tighten oversight and risk management.
Key proposals
- Offshore ETPs: authorised dealers (commercial banks and primary dealers) may deal on platforms abroad if the platform is in an FATF member jurisdiction and regulated by CPMI- and IOSCO-linked authorities.
- Rupee trades: only with non-residents; platform operators must publish transaction data.
- Rupee NDDCs: AD Category-I banks may deal with other authorised dealers, overseas entities, IBUs and OBUs, cash-settled in rupees or foreign currency; the bank or its non-resident parent needs an operating IBU.
- Governance: board-approved forex policy and a NOOP limit of 25% of total capital.
- Overseas borrowing: up to 100% of Tier I capital or $10 million, whichever is higher.
| Area | Proposal |
|---|---|
| NOOP limit | 25% of Tier I + Tier II capital |
| Borrowing ceiling | Higher of 100% of Tier I or $10 million |
| Exempt borrowings | Export credit, capital-raising funds, some head office funds, short-term nostro overdrafts |
| Surplus funds | Overnight placements, reverse repos and overseas sovereign or money market paper up to one year |
Background
- Authorised persons: AD Category-I banks and standalone Primary Dealers (AD Category-III), under Section 10(1) of FEMA, 1999.
- Net Open Position measures foreign currency risk, the gap between foreign currency assets and liabilities.
- Foreign exchange dealings are governed by FEMA, 1999.
Exam angle
- Act: Foreign Exchange Management Act, 1999.
- NOOP cap: 25% of total capital.
- FCNR(B) funds may go into long-term overseas sovereign debt, subject to conditions.