RBI/2010-11/338
A.P. (DIR Series) Circular No. 32
December 28, 2010
To
All Authorised Dealer - Category I banks
Madam / Sir
Comprehensive Guidelines on Over the Counter
(OTC) Foreign Exchange Derivatives and Overseas Hedging of Commodity Price and
Freight Risks
Attention of the Authorised Dealer Category - I (AD Category - I) banks is
invited to
Notification No. FEMA 25/2000-RB dated May 3, 2000, as amended from
time to time, which delineates the rules governing foreign exchange derivative
contracts. Further, attention is also invited to the Comprehensive Guidelines on
Derivatives issued by the Department of Banking Operations and Development
(DBOD), Reserve Bank of India, vide their circular
DBOD.No.BP.BC.
86/21.04.157/2006-07 dated April 20, 2007 which, among others, covers the broad
principles to be followed for undertaking derivative transactions,
appropriateness of the user, suitability of the product and risk management
practices to be followed.
- In the light of developments in the domestic and international financial
markets, the extant guidelines on OTC foreign exchange derivatives, commodity
price and freight risks have been revised in consultation with the banks, corporates and other stake holders. The Comprehensive Guidelines on Foreign
Exchange Derivatives and Overseas Hedging of Commodity Price and Freight Risks
are furnished in the Annex. The revised guidelines would be effective from
February 01, 2011.
- All the guidelines given in the Comprehensive Guidelines on Derivatives
issued vide Circular DBOD.No.BP.BC. 86/21.04.157/2006-07 dated April 20, 2007
and subsequent amendments thereto would also apply, mutatis mutandis, to the
foreign exchange derivatives.
- The necessary amendments to Notification No. FEMA.25/RB-2000 dated May 3,
2000 [Foreign Exchange Management (Foreign Exchange Derivatives Contracts)
Regulations, 2000] are being notified separately.
- AD Category - I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- The directions contained in this circular have been issued under Sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions /approvals, if any, required under any
other law.
Yours faithfully,
(Salim Gangadharan)
Chief General Manager-in-Charge