Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020 - FEMA.398/RB-2020 - Foreign Exchange Management

RESERVE BANK OF INDIA (Financial Markets Regulation Department) (CENTRAL OFFICE) NOTIFICATION Mumbai, the 18th February, 2020 Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020 No. FEMA.398/RB-2020 .-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 hereby makes the following amendments in the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ), namely: 1. Short title commencement i. These Regulations may be called the Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020. ii. These regulations shall come into force from the date of their publication in the Official Gazette. 2. Amendments i. In para 2 (Definitions) of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) the text of the definition of authorised dealer at sub para (ii) shall be substituted by the following: 'authorised dealer' means a person authorised as such by Reserve Bank under sub-section (1) of section 10 of the Act; ii. In para 2 (Definitions) of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) the existing definition of 'Foreign exchange derivative contract at sub para (v) shall be substituted by the following: 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. iii. In para 2 (Definitions) of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) the following may be added after the existing definitions: (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. iv. In para 2(Definitions) of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) the existing sub-paras (iii), (iv), (va), (vi), (viii), (ix) and (xi) shall stand deleted. v. In para 4 (Permission to a person resident in India to enter into a Foreign Exchange Derivative contract) of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) the existing text shall be replaced with the following: 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. vi. The existing paras 5 , 5A , 5B and 5C of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) shall stand deleted. vii. In sub-para (c) of para 7(Remittance related to a Foreign exchange derivative contract) , the reference to Regulation 5 shall stand replaced by Regulation 4. viii. Schedule I of the of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) shall be renamed as Permissible foreign exchange derivative contract ix. The existing text under Schedule I of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) shall be substituted by the following: 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 4 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. x. The existing text under Schedule II of the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 ( Notification No. FEMA 25/RB-2000 dated May 3, 2000 ) shall be deleted. DIMPLE BHANDIA, General Manager (Officer-in-Charge) [ADVT.-III/4/Exty./487/19] Footnote- The principal regulations were published in the Gazette of Government of India-Extraordinary-Part-II, Section 3, Sub-Section (i) vide G.S.R. 411(E) dated May 8, 2000 and subsequently amended vide G.S.R. 756(E) dated 28.09.2000, G.S.R. 264(E) dated 09.04.2002, G.S.R. 579(E) dated 19.08.2002, G.S.R. 222(E) dated 18.03.2003, G.S.R. 532(E) dated 09.07.2003, G.S.R. 880(E) dated 11.11.2003, G.S.R. 881(E) dated 11.11.2003, G.S.R. 750(E) dated. 28.12.2005, G.S.R. 222(E) dated 19.04.2006, G.S.R. 223(E) dated 19.04.2006, G.S.R. 760(E) dated 07.12.2007, G.S.R. 577(E) dated 05.08.2008, G.S.R. 440(E) dated 23.06.2009, G.S.R. 895(E) dated 14.12.2009, G.S.R. 635(E) dated 27.07.2010, G.S.R. 608(E) dated 03.08.2012, G.S.R. 799(E) dated 30.10.2012, G.S.R. 330(E) dated 23.05.2013, G.S.R. 374(E) dated 02.06.2014, G.S.R. 365(E) dated 01.06.2016 G.S.R. 378(E) dated 25.10.2016 G.S.R. 260(E) dated 17.03.2017 and G.S.R. 1324(E) dated 24.10.2017