RBI allows UCBs to participate in currency options trading on bourses

Reserve Bank of India (RBI) has allowed urban cooperative banks (UCBs) belonging to Category I authorised dealers, fulfilling the norms for AD - I licence to participate in the exchange traded currency option market as clients.

Such UCBs, however, will be allowed to participate only for hedging the underlying forex exposure arising from any customer transactions. They can participate in a designated exchange recognised by SEBI, subject to RBI (Foreign Exchange Department) Guidelines.

UCBs, which are authorised to undertake forex business as Category - I authorised dealer and desirous of participating in the exchange traded currency option market should approach RBI for specific approval in this regard, the central bank said in a circular.

The RBI had, on 6 August 2008, issued guidelines on trading of currency options on recognised stock exchanges as also new exchanges, in terms of which resident Indians were permitted to participate in the currency futures market in the country subject to directions contained in the RBI directions.

The RBI's 2010-11 monetary policy statement had announced that recognised stock exchanges would be permitted to introduce plain vanilla currency options on spot US dollar/ rupee exchange rate for residents.

Accordingly, it has been decided to permit trading of currency options on spot dollar-rupee rate in the currency derivatives segment of SEBI-recognised stock exchanges. The currency options market would function subject to the directions, guidelines, instructions, rules, etc issued by the RBI and the SEBI from time to time, RBI had said in the circular.