-
Sections
-
Regulation - 1. Short title & commencement.
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Regulation - 2. Definitions.
-
Regulation - 3. Prohibition.
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Regulation - 4. Permission to a person resident in India to enter into a Foreign Exchange Derivative contract.
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Regulation - 5.
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Regulation - 5A.
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Regulation - 5B.
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Regulation - 5C.
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Regulation - 6. [Commodity Hedge.
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Regulation - 6A. [Freight hedge.
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Regulation - 7. Remittance related to a Foreign Exchange Derivative contract.
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Regulation - 8. [Remittance related to a Commodity Derivative Contract.
FOREIGN EXCHANGE MANAGEMENT (FOREIGN EXCHANGE DERIVATIVE
CONTRACTS) REGULATIONS, 2000
PREAMBLE
In exercise of the powers conferred by clause (h) of sub-section (2) of
Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the
Reserve Bank makes the following regulations, to promote orderly development
and maintenance of foreign exchange market in India, namely:
Regulation - 1. Short title & commencement.
(1) These Regulations may
be called the Foreign Exchange Management (Foreign exchange derivative
contracts) Regulations, 2000.
(2) They shall come in
force on the 1st day of June, 2000.
Regulation - 2. Definitions.
In these Regulations,
unless the context requires otherwise, -
(i)
'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999);
[1][(ii) 'authorised
dealer' means a person authorised as such by Reserve Bank under sub-section (1)
of section 10 of the Act;]
(iii) [2][***]
(iv) [3][***]
[4][(v) Foreign
exchange derivative contract" means a financial contract which derives its
value from the change in the exchange rate of two currencies at least one of
which is not Indian Rupee or which derives its value from the change in the interest
rate of a foreign currency and which is for settlement at a future date, i.e.
any date later than the spot settlement date, provided that contracts involving
currencies of Nepal and Bhutan shall not qualify under this definition.]
(va) [5][***]
(vi) [6][***]
(vii)
'Schedule' means a schedule annexed to these Regulations;
(viii) [7][***]
(ix) [8][***]
(x)
the words and expressions used but not defined in these Regulations shall have
the same meanings respectively assigned to them in the Act.
(xi) [9][***]
[10][(xii) 'Contracted
exposure' refers to currency risk arising on account of current and capital
account transactions permissible under the Act or any rules or regulations made
thereunder, that have been entered into.
(xiii)
'Anticipated exposure' refers to currency risk arising on account of current
and capital account transactions permissible under the Act or any rules or
regulations made thereunder, that are proposed to be entered into in future.
(xiv)
'Currency risk' means the potential for loss on account of movement in exchange
rates of Rupee against a foreign currency or on account of movement in exchange
rates of one foreign currency against another or on account of movement of
interest rate applicable to a foreign currency.
(xv)
'Hedging' means the activity of undertaking a foreign exchange derivative
transaction to manage currency risk.
(xvi)
'Exchange traded currency derivatives' means a standardised foreign exchange
derivative contract traded on a recognized stock exchange to buy or sell one
currency against another on a specified future date, at a price specified on
the date of contract.]
Regulation - 3. Prohibition.
Save as otherwise
provided in these Regulations, no person in India shall enter into a foreign
exchange derivative contract [11][or
currency futures] without the prior permission of the Reserve Bank.
Regulation - 4. Permission to a person resident in India to enter into a Foreign Exchange Derivative contract.
[12][Permission to enter
into a foreign exchange derivative contract - A person, whether resident in
India or resident outside India, may enter into a foreign exchange
derivative contract or exchange traded currency derivative
contract in accordance with provisions contained in Schedule I
of this regulation.]
Regulation - 5.
[13][***]
Regulation - 5A.
[14][***]
Regulation - 5B.
[15][***]
Regulation - 5C.
[16][***]
Regulation - 6.[Commodity Hedge.
(i) Reserve Bank may, on
an application made in accordance with the procedure specified in Schedule III
permit, subject to such terms and conditions as it may consider necessary, a
person resident in India to enter into a contract in a commodity exchange or
market outside India to hedge the price risk in a commodity.
(ii) Notwithstanding
anything contained in sub-regulation (i), an authorized dealer bank specially
authorized in that behalf by the Reserve Bank may permit a company, resident in
India [17][***],
to enter into contracts in a commodity exchange or market outside India, to
hedge the price risk in a commodity [18][***]
subject to such terms and conditions as may be stipulated by the Reserve Bank
from time to time.
Provided that such
authorized dealer bank shall exercise such authority subject to the directions
and guidelines issued to them by the Reserve Bank in that behalf.
(iii) An authorized dealer
bank may apply to the Reserve Bank of India, Foreign Exchange Department for
grant of authority to grant permission under sub-regulation (ii) to its
customers.
(iv) Notwithstanding
anything contained in this regulation a unit in the Special Economic Zone (SEZ)
may enter into contracts in a commodity exchange or market outside India to
hedge the price risk of the commodity of export/import, subject to the
condition that such contract is entered into on a "stand-alone"
basis.
Explanation: The term
"stand-alone" means that the unit in the SEZ is completely isolated
from financial contracts with its parent or subsidiary in the mainland or
within the SEZ(s) as far as its import/export transactions are concerned][19]
Regulation - 6A.[Freight hedge.
(i) Reserve Bank may, on
an application made in accordance with such procedure as may be directed by
Reserve Bank, permit a person resident in India, subject to such terms and
conditions as may be considered necessary, to enter into a freight derivative
contract in an exchange or a market out side India to hedge the freight risk
such person is exposed to.
(ii) Notwithstanding
anything contained in sub-regulation (i) an authorised dealer in India
specially authorised by the Reserve Bank under sub-regulation (ii) of
Regulation 6 may permit an oil refining company or a shipping company, resident
in India, to enter into freight derivative contracts in an exchange or market
outside India, to hedge the freight risk which the company is exposed to,
subject to such terms and conditions as may be stipulated by the Reserve Bank
from time to time:
Provided that such
authorised dealer category-I bank shall exercise the authority subject to
directions and guidelines issued to them by the Reserve Bank in that behalf.][20]
Regulation - 7. Remittance related to a Foreign Exchange Derivative contract.
An authorised dealer
in India may remit outside India foreign exchange in respect of a transaction,
undertaken in accordance with these Regulations, in the following cases,
namely;
(a) option premium
payable by a person resident in India to a person resident outside India,
(b) remittance by a
person resident in India of amount incidental to a foreign exchange derivative
contract entered into in accordance with Regulation 4,
(c) remittance by a
person resident outside India of amount incidental to a foreign exchange
derivative contract entered into in accordance with Regulation 5,
(d) any other remittance
related to a foreign exchange derivative contract approved by Reserve Bank
Regulation - 8.[Remittance related to a Commodity Derivative Contract.
An authorised dealer
in India may remit outside India foreign exchange in respect of a transaction,
undertaken in accordance with these Regulations, in the following cases,
namely:
(a) option premium
payable by a person resident in India to a person resident outside India;
(b) remittance by a
person resident in India of amount incidental to a commodity derivative
contract entered into in accordance with Regulation 6;
(c) any other remittance
related to a commodity derivative contract approved by Reserve Bank.][21]
SCHEDULE I
(See
regulation 4)
[22][Permissible foreign
exchange derivative contract]
[23][1. A person, whether resident in India or
resident outside India, may enter into a foreign exchange derivative
contract with an authorised dealer. Contracts involving Rupee subject
to the following condition(s):
(i) that such contracts
shall be for the purpose of hedging a contracted or anticipated exposure
Provided that
contracts not based on a contracted or anticipated exposure may
be undertaken, as may be permitted by the Reserve Bank of India.
Provided further that
transactions that involve the Rupee but are settled by delivery of a foreign
currency shall be undertaken only by an authorised dealer or a person not
resident in India and such other persons as may be permitted by the Reserve
Bank of India, in terms of the directions issued in this regard by the Reserve
Bank of India.
(ii) that such person
shall share the details of the exposure with the authorised dealer when called
upon to do so by the authorised dealer.
2.
A person may enter into an exchange
traded currency derivative contract on an exchange recognised under
section [24][of
the Securities Contract (Regulation) Act, 1956. Contracts involving Rupee
shall be subject to the following condition(s):
(i) that such contracts
shall be for the purpose of hedging a contracted exposure as defined in these
regulations.
(ii) that such person
shall designate an Authorised Dealer in India for monitoring of their positions
taken beyond such position limits as may be prescribed by the Reserve Bank of
India to an exchange.
(iii) that such person
shall share the details of the contracted exposure with the Authorised Dealer
when called upon to do so by the dealer.]
[25][***]
(See
Regulation 6)
Procedure
for application for approval for hedging of commodity price risk
1.
A
person resident in India , engaged in export-import trade [26][or
as permitted by the Reserve Bank] ,who seeks to hedge price risk in respect of
any commodity including Gold, [27][***],
may submit an application to the International Banking Division of an
authorised dealer giving the following details.
(i) A brief description
of the hedging strategy proposed ; namely :
(a) description of
business activity and nature of risk;
(b) instruments proposed
to be used for hedging ;
(c) names of commodity
exchange and brokers through whom the risk is proposed to be hedged and credit
lines proposed to be availed. The name and address of the regulatory authority
in the country concerned may also be given ;
(d) size/average tenure
of exposure and/or total turnover in a year , together with expected peak
positions thereof and the basis of calculation.
(ii) copy of the Risk
Management Policy approved by the Management covering:
(a) risk identification,
(b) risk measurements,
(c) guidelines and
procedures to be followed with respect to revaluation and/or monitoring of
positions,
(d) names and
designations of the officials authorised to undertake transactions and limits.
(iii) Any other relevant
information.
2.
Authorised
dealer after ensuring that the application is supported by documents indicated
in paragraph 1, may forward the application with its recommendations to Reserve
Bank for consideration.
"SCHEDULE
II
(See
regulation 5)
Foreign
exchange derivative contracts permissible for a person resident outside India
1.
A
Registered Foreign Institutional Investor (FII) may enter into a forward
contract with rupee as one of the currencies with an authorised dealer in India
to hedge its exposure in India,
Provided that -
(a) the value of the
hedge does not exceed the current market value in respect of investments in
debt instruments,
(b) [28][forward contracts
may be cancelled and rebooked subject to such terms and conditions as may be
stipulated by the Reserve Bank from time to time, or may be rolled over on or
before maturity]
(c) forward contracts
once cancelled shall not be rebooked but may be rolled over on or before the
maturity,
(d) the cost of hedge is
met out of repatriable funds and/or inward remittance through normal banking
channel,
(e) all outward
remittances incidental to hedge are net of applicable Indian taxes.
[29][1A. A registered FII
may enter into foreign currency - rupee swaps for hedging the transient capital
flows relating to the Initial Public Offers (IPO) under the Application
Supported by Blocked Amount (ASBA) mechanism, subject to such terms and
conditions as may be stipulated by the Reserve Bank from time to time.]
2.
A
non-resident Indian or Overseas Corporate Body may enter
into forward contract with rupee as one of the currencies, with an
authorised dealer in India to hedge;
(a) the amount of
dividend due to him/it on shares held in an Indian company;
(b) the balances held in
Foreign Currency Non-Resident (FCNR) account or NonResident External Rupee
(NRE) account,
(c) the amount of investment
made under portfolio scheme in accordance with the provisions of the Foreign
Exchange Regulation Act, 1973 or under notifications issued thereunder or is
made in accordance with the provisions of the Foreign Exchange Management
(Transfer or issue of Security by a Person Resident outside India) Regulations,
2000 and in both cases subject to the terms and conditions specified in the
proviso to paragraph 1 of this Schedule.
[30][2 A. A non-resident
Indian may, subject to conditions prescribed by the Reserve Bank of India from
time to time, enter into cross currency (not involving the rupee) forward
contracts to convert the balances held in FCNR (B) accounts in one foreign
currency to another foreign currency in which FCNR (B) deposits are permitted
to be maintained.]
3.
Reserve
Bank may, on application, allow a person resident outside India to purchase a
forward contract to hedge his investment made since 1st January 1993.
[31][3 A. A person
resident outside India may, subject to conditions prescribed by the Reserve
Bank of India from time to time, enter into a forward sale contract with an
authorized dealer in India to hedge the currency risk arising out of his
proposed foreign direct investment in India.
3B.
A person resident outside India having
Foreign Direct Investments in India may, subject to the condition that forward
cover shall be taken only after the rate has been approved by the Board, enter
into forward contracts with rupee as one of the currencies to hedge the
currency risk on dividend receivable by him from the Indian company.]
4.
[32][A Foreign
Institutional Investor, a Non-Resident Indian or a Person Resident outside
India having Foreign Direct Investment in India, may enter into a foreign
currency-rupee option contract with an authorized dealer in India, under the
same terms and conditions applicable to forward contracts.]
5.
[33][A non-resident
importer / exporter may enter in to a forward contract with rupee as one of the
currencies or a foreign currency - rupee option contract with an Authorised Dealer
in India to hedge the currency risk in respect of exports from
and imports to India, invoiced in Indian Rupees, subject to such
terms and conditions as may be stipulated by the Reserve Bank from time to
time.]
6.
[34][A
non-resident may enter in to a forward contract with rupee as one of the
currencies or a foreign currency-rupee option contract or a foreign
currency-INR swap with an Authorised Dealer in India to hedge the currency risk
in respect of ECBs denominated in Indian Rupees, subject to such terms and
conditions as may be stipulated by the Reserve Bank from time to time.]
[35][A non-resident may
enter into a foreign exchange derivative contract with an Authorised Dealer
bank in India to hedge an exposure to exchange risk of and on behalf of its
Indian subsidiary in respect of the said
subsidiary's transactions subject to such terms and conditions as may
be stipulated by the Reserve Bank from time to time.]
7.
[36][A Foreign Portfolio
Investor may enter into forward contracts, foreign currency-rupee option
contract, cost reduction structures or swaps with Rupee as one of the
currencies with an Authorised Dealer in India to hedge the currency risk
in respect of investments made under the Voluntary Retention Route (VRR)
facility subject to such terms and conditions as may be stipulated by the
Reserve Bank from time to time.]"
[1] Substituted by
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First
Amendment) Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated
18.02.2020, for the following:-
"(ii)
'authorised dealer' means a person authorised as authorised dealer under
subsection (1) of section 10 of the Act;"
[2] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"(iii)
'Cash delivery ' means delivery of foreign exchange on the day of transaction ;
(iv)
'Forward contract' means a transaction involving delivery, other than Cash or
Tom or Spot delivery, of foreign exchange;"
[3] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations,
2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020, the previous
text was:-
"(iii)
'Cash delivery ' means delivery of foreign exchange on the day of transaction ;
(iv)
'Forward contract' means a transaction involving delivery, other than Cash or
Tom or Spot delivery, of foreign exchange;"
[4] Substituted by
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First
Amendment) Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated
18.02.2020, for the following:-
"(v)
'Foreign exchange derivative contract' means a financial transaction or an
arrangement in whatever form and by whatever name called, whose value is
derived from price movement in one or more underlying assets, and includes,
(a)
a transaction which involves at least one foreign currency other than currency
of Nepal or Bhutan, or
(b)
a transaction which involves at least one interest rate applicable to a foreign
currency not being a currency of Nepal or Bhutan , or
(c)
a forward contract, but does not include foreign exchange transaction for Cash
or Tom or Spot deliveries;"
[5] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"[(va)
'Currency Futures' means a standardised foreign exchange derivative contract
traded on a recognized sTock exchange to buy or sell one currency against
another on a specified future date, at a price specified on the date of contract,
but does not include a forward contract.]
(vi)
'Registered Foreign Institutional Investor (FII) ' means a foreign
institutional investor registered with Securities and Exchange board of
India;"
[6] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"[(va)
'Currency Futures' means a standardised foreign exchange derivative contract
traded on a recognized sTock exchange to buy or sell one currency against
another on a specified future date, at a price specified on the date of
contract, but does not include a forward contract.]
(vi)
'Registered Foreign Institutional Investor (FII) ' means a foreign
institutional investor registered with Securities and Exchange board of
India;"
[7] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"(viii)
'Spot delivery' means delivery of foreign exchange on the second working day
after the day of transaction;
(ix)
'Tom delivery' means delivery of foreign exchange on a working day next to the
day of transaction;"
[8] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"(viii)
'Spot delivery' means delivery of foreign exchange on the second working day
after the day of transaction;
(ix)
'Tom delivery' means delivery of foreign exchange on a working day next to the
day of transaction;"
[9] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"(xi)
'Qualified Foreign Investor (QFI)' means a person resident outside India as
defined in Regulation 2 of FEMA 20/RB-2000 dated May 3, 2000."
[10] Inserted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020.
[11] Inserted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2008 vide Notification No : GSR577(E) dated 01.08.2008.
[12] Substituted by
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First
Amendment) Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated
18.02.2020, the previous text was:-
"[A
person resident in India may enter into a foreign exchange derivative contract
in accordance with provisions contained in Schedule I, to hedge an exposure to
risk or otherwise, in respect of a transaction permissible under the Act, or
rules or regulations or directions or orders made or issued thereunder.]"
[13] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"5.
Permission to a person resident outside India to enter into a Foreign Exchange
Derivative contract.
A
person resident outside India may enter into a foreign exchange derivative
contract with a person resident in India in accordance with provisions
contained in Schedule II, to hedge an exposure to risk in respect of a
transaction permissible under the Act, or rules or regulations or directions or
orders made or issued thereunder."
5A.
[Permission to a person resident in India to enter into currency futures or
currency options.
A
Persons resident in Indian may enter into currency futures or currency options
on a stock exchange recognized under Section 4 of the Securities Contract
(Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to
such terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5B.
[Permission to a person resident outside India to enter into currency futures
or exchange traded currency options.
A
person resident outside India who is eligible to invest in securities as laid
down in Schedules 2, 5, 7 and 8 of Foreign Exchange Management (Transfer or
Issue of Security by a person resident outside India) Regulations, 2000 (FEMA
20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from
time to time, may enter into currency futures or exchange traded currency
options contracts on a stock exchange recognised under section 4 of Securities
Contracts (Regulations) Act, 1956 to hedge an exposure to risk, subject to such
terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5C.
[Permission to resident and non-resident entities to undertake hedge
transactions with simplified procedures Notwithstanding anything contained in
paras 4, 5, 5A and 5B, resident entities with foreign currency exposures and
non- resident entities with rupee exposures, other than individuals, may hedge
underlying exchange rate risk arising out of transactions permitted under
Foreign Exchange Management Act, 1999, or rules or regulations or directions or
orders made or issued thereunder, subject to such simplified terms and
conditions as may be set forth in the directions issued by the Reserve Bank
from time to time.]"
[14] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"5.
Permission to a person resident outside India to enter into a Foreign Exchange
Derivative contract.
A
person resident outside India may enter into a foreign exchange derivative
contract with a person resident in India in accordance with provisions
contained in Schedule II, to hedge an exposure to risk in respect of a
transaction permissible under the Act, or rules or regulations or directions or
orders made or issued thereunder."
5A.
[Permission to a person resident in India to enter into currency futures or
currency options.
A
Persons resident in Indian may enter into currency futures or currency options
on a stock exchange recognized under Section 4 of the Securities Contract
(Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to
such terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5B.
[Permission to a person resident outside India to enter into currency futures
or exchange traded currency options.
A
person resident outside India who is eligible to invest in securities as laid
down in Schedules 2, 5, 7 and 8 of Foreign Exchange Management (Transfer or
Issue of Security by a person resident outside India) Regulations, 2000 (FEMA
20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from
time to time, may enter into currency futures or exchange traded currency options
contracts on a stock exchange recognised under section 4 of Securities
Contracts (Regulations) Act, 1956 to hedge an exposure to risk, subject to such
terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5C.
[Permission to resident and non-resident entities to undertake hedge
transactions with simplified procedures Notwithstanding anything contained in
paras 4, 5, 5A and 5B, resident entities with foreign currency exposures and
non- resident entities with rupee exposures, other than individuals, may hedge
underlying exchange rate risk arising out of transactions permitted under
Foreign Exchange Management Act, 1999, or rules or regulations or directions or
orders made or issued thereunder, subject to such simplified terms and
conditions as may be set forth in the directions issued by the Reserve Bank
from time to time.]"
[15] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"5.
Permission to a person resident outside India to enter into a Foreign Exchange
Derivative contract.
A
person resident outside India may enter into a foreign exchange derivative
contract with a person resident in India in accordance with provisions
contained in Schedule II, to hedge an exposure to risk in respect of a
transaction permissible under the Act, or rules or regulations or directions or
orders made or issued thereunder."
5A.
[Permission to a person resident in India to enter into currency futures or
currency options.
A
Persons resident in Indian may enter into currency futures or currency options
on a stock exchange recognized under Section 4 of the Securities Contract
(Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to
such terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5B.
[Permission to a person resident outside India to enter into currency futures
or exchange traded currency options.
A
person resident outside India who is eligible to invest in securities as laid
down in Schedules 2, 5, 7 and 8 of Foreign Exchange Management (Transfer or
Issue of Security by a person resident outside India) Regulations, 2000 (FEMA
20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from
time to time, may enter into currency futures or exchange traded currency
options contracts on a stock exchange recognised under section 4 of Securities
Contracts (Regulations) Act, 1956 to hedge an exposure to risk, subject to such
terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5C.
[Permission to resident and non-resident entities to undertake hedge
transactions with simplified procedures Notwithstanding anything contained in
paras 4, 5, 5A and 5B, resident entities with foreign currency exposures and
non- resident entities with rupee exposures, other than individuals, may hedge
underlying exchange rate risk arising out of transactions permitted under
Foreign Exchange Management Act, 1999, or rules or regulations or directions or
orders made or issued thereunder, subject to such simplified terms and
conditions as may be set forth in the directions issued by the Reserve Bank
from time to time.]"
[16] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
"5.
Permission to a person resident outside India to enter into a Foreign Exchange
Derivative contract.
A
person resident outside India may enter into a foreign exchange derivative
contract with a person resident in India in accordance with provisions
contained in Schedule II, to hedge an exposure to risk in respect of a
transaction permissible under the Act, or rules or regulations or directions or
orders made or issued thereunder."
5A.
[Permission to a person resident in India to enter into currency futures or
currency options.
A
Persons resident in Indian may enter into currency futures or currency options
on a stock exchange recognized under Section 4 of the Securities Contract
(Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to
such terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5B.
[Permission to a person resident outside India to enter into currency futures
or exchange traded currency options.
A
person resident outside India who is eligible to invest in securities as laid
down in Schedules 2, 5, 7 and 8 of Foreign Exchange Management (Transfer or
Issue of Security by a person resident outside India) Regulations, 2000 (FEMA
20/2000-RB dated May 3, 2000 (GSR 406 (E) dated May 3, 2000)) as amended from
time to time, may enter into currency futures or exchange traded currency
options contracts on a stock exchange recognised under section 4 of Securities
Contracts (Regulations) Act, 1956 to hedge an exposure to risk, subject to such
terms and conditions as may be set forth in the directions issued by the
Reserve Bank of India from time to time.]
5C.
[Permission to resident and non-resident entities to undertake hedge
transactions with simplified procedures Notwithstanding anything contained in
paras 4, 5, 5A and 5B, resident entities with foreign currency exposures and
non- resident entities with rupee exposures, other than individuals, may hedge
underlying exchange rate risk arising out of transactions permitted under
Foreign Exchange Management Act, 1999, or rules or regulations or directions or
orders made or issued thereunder, subject to such simplified terms and
conditions as may be set forth in the directions issued by the Reserve Bank
from time to time.]"
[17] Omitted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Second
Amendment) Regulations, 2009 vide Notification No. GSR895(E) dated 05.11.2009
(w.e.f. 03.06.2008) for the words :- "and listed on a recognized Stock
exchange"
[18] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2007 vide Notification No. GSR760(E) dated 17.09.2007 w.e.f 31st
May, 2007 the following":-
"imported/exported
by it"
[19] Regulation 6
Substituted by Notification No. GSR223 (E) dated 16.03.2006 w.e.f.23.06.2005
for the following:-
"Reserve
Bank may, on an application made in accordance with the procedure specified in
Schedule III, permit subject to such terms and conditions as it may consider
necessary, a person resident in India to enter into a contract in a commodity
exchange or market outside India to hedge price risk in a commodity.
4[Provided
that a unit in the Special Economic Zone (SEZ) may without prior approval of
the Reserve Bank, enter into a contract in a commodity exchange or market
outside India to hedge the price risk in the commodity on export/import,
subject to the condition that such contract is entered into on a
"stand-alone" basis.
Explanation
:The term "stand-alone" means that the unit in the SEZ is completely
isolated from financial contacts with its parent or subsidiary in the mainland
or within the SEZ(s) as far as its import/export transactions are concerned.]
[20] Inserted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2009 Notification No. GSR440(E) Dated 20.05.2009.
[21] Inserted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2007 vide Notification No. GSR760(E) dated 17.09.2007 w.e.f 23rd July,
2005.
[22] Substituted by
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First
Amendment) Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated
18.02.2020, the previous text was:-
"Foreign
exchange derivative contract permissible for a person resident in India"
[23] Substituted by
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First
Amendment) Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated
18.02.2020, the previous text was:-
"A.
Forward Contract
1.
A person resident in India may enter into a forward contract with an authorised
dealer in India to hedge an exposure to exchange risk in respect of a
transaction for which sale and/or purchase of foreign exchange is permitted
under the Act, or rules or regulations or directions or orders made or issued
thereunder, subject to following terms and conditions-
[(a)
the authorised dealer through verification of documentary evidence is satisfied
about the genuineness of the under lying exposure or as otherwise permitted by
the Reserve Bank from time to time.]
(b)
the maturity of the hedge does not exceed the maturity of the underlying
transaction,
(c)
the currency of hedge and tenor are left to the choice of the customer,
(d)
where the exact amount of the underlying transaction is not ascertainable, the
contract is booked on the basis of a reasonable estimate,
(e)
foreign currency loans/bonds will be eligible for hedge only after final
approval is accorded by the Reserve Bank where such approval is necessary,
(f)
in case of Global Depository Receipts (GDRs) [American Depository Receipts
(ADRs)] the issue price has been finalised,
(g)
balances in the Exchange Earner's Foreign Currency (EEFC) accounts sold forward
by the account holders shall remain earmarked for delivery and such contracts
shall not be cancelled. They may be ,however, be rolled-over,
[(h)
Contracts involving the rupee as one of the currencies, once cancelled, shall
not be rebooked except as otherwise permitted by the Reserve Bank from time to
time although they can be rolled over at on-going rates on or before maturity.
Such contracts booked by residents to hedge current account transactions,
regardless of tenor, not being those booked on past performance basis without
documents or booked to hedge transactions denominated in foreign currency but
settled in Indian Rupee, may be cancelled and rebooked freely at on going
rates. Contracts covering export transactions may also be cancelled, rebooked
or rolled over at on going rates without any restriction.].
(i)
substitution of contracts for hedging trade transactions may be permitted by an
authorised dealer on being satisfied with the circumstances under which such
substitution has become necessary.
[(j)
A person resident in India may, subject to the terms and conditions prescribed
by Reserve Bank of India, enter into a forward contract with an authorised
dealer in India to hedge an exposure to exchange risk in respect of
transactions denominated in foreign currency but settled in Indian rupees.]
[AA.
Forward Contract in respect of Economic Exposure.
A
person resident in India may, subject to such terms and conditions as may be
stipulated by the Reserve Bank from time to time, enter into a forward contract
with an authorised dealer in India to hedge an economic exposure to exchange
risk in respect of such transactions as may be prescribed by the Reserve Bank
from time to time.]
B.
Contract other than Forward Contract
2. (1) A person resident in India who has
borrowed foreign exchange in accordance with the provisions of Foreign Exchange
Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000 , may
enter into an Interest rate swap or Currency swap or Coupon Swap or Foreign
Currency Option or Interest rate cap or collar (purchases) or Forward Rate
Agreement (FRA) contract with an authorised dealer in India or with a branch
outside India of an authorised dealer for hedging his loan exposure and
unwinding from such hedges,
Provided
that -
(a)
the contract does not involve rupee,
(b)
the Reserve Bank has accorded final approval for borrowing in foreign currency,
(c)
the notional principal amount of the hedge does not exceed the outstanding
amount of the foreign currency loan, and
(d)
the maturity of the hedge does not exceed the un-expired maturity of the
underlying loan,
(2)
A person resident in India, who owes a foreign exchange or rupee liability, may
enter into a contract for foreign currency-rupee swap with an authorised dealer
in India to hedge long term exposure,
(3)
The contract entered into under sub-paragraph 2, if cancelled shall not be
rebooked or re-entered, by whatever name called.
3. (1) A person resident in India may enter
into a foreign currency option contract 7[not involving the rupee as one of the
currencies] with an authorised dealer in India to hedge foreign exchange
exposure of such person arising out of his trade :
[***]
Explanation
:
The
contingent foreign exchange exposure arising out of submission of a tender bid
in foreign exchange is also eligible for hedging under this sub-paragraph.
(2)
A Transactions undertaken under sub-paragraph (1) may be freely booked and/or
cancelled.
[(3)
A person resident in India may enter into a foreign currency-rupee option
contract with an authorized dealer to hedge an exposure to exchange risk in
respect of a transaction for which sale and/or purchase of foreign currency is
permitted under the Act or the rules or regulations or directions or orders
made or issued there under on the same terms and conditions applicable to forward
contracts.]
[(4)
A person resident in India may enter into cross-currency option cost reduction
structures (not involving the rupee as one of the currencies) and foreign
currency-rupee option cost reduction structures with an authorised dealer to hedge
an exposure to exchange risk arising out of trade transactions or external
commercial borrowings subject to such terms and conditions as may be stipulated
by the Reserve Bank from time to time.]
[(C)
Writing of standalone options against underlying exposure
A
person resident in India may enter into cross-currency option contract (not
involving the rupee as one of the currencies) and/or foreign currency - rupee
option contract authorised dealer against an underlying foreign exchange
exposure in respect of a transaction for which sale and/or purchase of foreign
currency is permitted under the Act or the rules or regulations or directions
or orders made or issued thereunder subject to such terms and conditions as may
be stipulated by the Reserve Bank from time to time.]"
[24] Inserted by
Notification No. GSR579(E) dated 27.07.2002.
[25] Omitted by Foreign
Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment)
Regulations, 2020, vide Notification No. FEMA-398/RB-2020, dated 18.02.2020,
the previous text was:-
[26] Inserted by
Notification No GSR881(E) dated 21.10.2003 w.e.f. 11.11.2003.
[27] Omitted by
Notification No. FEMA 28/2000 dated 05.09.2000 the words "but excluding
oil and petroleum products"
[28] Substituted by
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2007 vide Notification No. GSR760(E) dated 17.09.2007 w.e.f 8th
February, 2007 for the following:-
"(b)
the value of the hedge does not exceed 15% of the market value of the equity as
at the close of business on 31st March 1999, converted at the rate of US $ 1=
Rs.42.43 plus the increase in market value/inflows after 31st March 1999
provided that the forward cover once taken shall be allowed to continue as long
as it does not exceed the value of the underlying investment"
[29] Inserted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2012 vide Notification No. GSR608(E) dated 16.03.2012 w.e.f.
20.05.2011.
[30] Inserted by
Notification No GSR880(E) dated 21.10.2003 w.e.f. 11.11.2003.
[31] nserted by
Notification No GSR880(E) dated 21.10.2003 w.e.f. 11.11.2003.
[32] Inserted by
Notification No FEMA-143/2005-RB dt 19.12.2005 w.r.e.f. 07.07.2003.
[33] Inserted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2012 vide Notification No. GSR608(E) dated 16.03.2012 w.e.f.
21.07.2011.
[34] Inserted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2013.
[35] Inserted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2017 vide Notification No. FEMA-384/2017-RB dated 17.03.2017.
[36] Inserted by the
Foreign Exchange Management (Foreign Exchange Derivative Contracts) (Amendment)
Regulations, 2019 vide Notification No. GSR161(E) dated 26.02.2019.