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TMI BlogRisk Management and Inter-Bank Dealings - Commodity Hedging.X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by the Reserve Bank from time to time, are permitted to hedge the price risk of permitted commodities in the international commodity exchanges / markets. Further, AD Category I banks satisfying certain minimum norms are specifically authorised by the Reserve Bank (please refer to Section E para I of the above mentioned Circular) to grant permission to companies listed on a recognized stock exchange to hedge price risk on import/ export in respect of any commodity (except gold, silver, platinum) in the international commodity exchanges/ markets; domestic companies engaged in refining crude oil to hedge the price risk on crude oil imports on the basis of past performance; (i) domestic producers/ users of aluminium, copper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the name of the commodity hedged. 5. Applications from customers to undertake hedge transactions not covered under the delegated route may continue to be forwarded to the Reserve Bank by the Authorised Dealers for approval, as hitherto. 6. 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. 7. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers. 8. 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 prejud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transactions are given below. It is clarified that hedging the price risk on domestic sale/purchase transactions in the international exchanges/markets, even if the domestic price is linked to the international price of the commodity, is not permitted, except certain specified transactions as approved/may be approved by the Reserve Bank. Necessary advice may be given to the customers before they start their hedging activity. A. Conditions/ Guidelines for undertaking hedging transactions in the international commodity exchanges/ markets The focus of the hedge transactions shall be on risk containment. Only off-set hedge is permitted. All standard exchange traded futures and options (purchases only) are permitted. If the risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egory I bank. The certificate should confirm that the prescribed terms and conditions have been complied with and that the corporate/firm s internal controls are satisfactory. These certificates may be kept on record for internal audit/inspection. B. Conditions for allowing users to enter into a combination of OTC option strategies involving a simultaneous purchase and sale of options for overseas Commodity hedging : 1. Users Listed companies or unlisted companies with a minimum networth of Rs. 100 crore, which comply with the following: Adoption of Accounting Standards 30 and 32 (for companies not complying those companies which follow the accounting treatment and disclosure standards on derivative contracts, as envisage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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