RBI issues new circulars restricting rebooking of cancelled INR derivative contracts and tightening forex market regulations. The move aims to prevent speculative trading and ensure orderly market conditions.
RBI Imposes Ban on Rebooking Cancelled Forex Derivatives
The Reserve Bank of India has introduced significant regulatory changes in the foreign exchange market through two circulars: A.P. (DIR Series) Circular No. 25 and No. 26. These impose a strict prohibition on authorized dealers permitting clients to rebook foreign exchange derivative contracts involving the Indian rupee that have been previously cancelled.
This restriction is intended to curb speculative activity and round-tripping of funds, especially in volatile market conditions. The RBI observed that repeated cancellation and rebooking could be exploited for arbitrage or capital account circumvention, undermining the integrity of the Forex market. Authorized Dealer banks are now required to implement robust monitoring systems to enforce compliance.
Corporate legal teams and compliance officers must review existing hedging structures and ensure that treasury desks adhere strictly to the new norms. Violations may attract enforcement action under FEMA regulations, emphasizing the need for updated internal policies and audit trails.