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TMI BlogIntroduction of Exchange Traded Cross Currency Derivatives contracts on EUR-USD, GBP-USD and USD-JPY currency pairs and Exchange Traded Option contracts on EUR-INR, GBP-INR and JPY-INR currency pairsX X X X Extracts X X X X X X X X Extracts X X X X ..... mit recognized stock exchanges to introduce cross-currency futures and options contracts on EUR-USD, GBP-USD and USD-JPY. The details in terms of product design, margins and position limits for the specified currency pairs are as given under Annexure I. 3. Further, it has also been decided to permit recognized stock exchanges to introduce currency options on EUR-INR, GBP-INR and JPY-INR currency pairs. The details in terms of product design, margins and position limits for the three additional currency pairs are as given under Annexure II. 4. Eligible market participants, i.e., stock brokers, domestic institutional investors, FPIs and clients, are allowed to take positions in the exchange traded cross-currency futures and option contracts in the EUR-USD, GBP-USD and USD-JPY currency pairs and exchange traded currency option contracts in EUR-INR, GBP-INR and JPY-INR currency pairs, subject to terms and conditions mentioned in this circular and the aforesaid circular of RBI. 5. The existing limits of USD 15 million for USD-INR contracts and USD 5 million for non USD-INR contracts (i.e. EUR-INR, GBP-INR and JPY-INR), all put together, per exchange, without having to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Dynamic Price Bands for currency futures contracts (including cross-currency futures contracts) (a) Stock exchanges shall set the daily dynamic price bands of the currency futures contracts as mentioned in the table below: Contracts with tenure up to 6 months 3% of the theoretical price or the previous day closing price, as applicable Contracts with tenure greater than 6 months 5% of the theoretical price or the previous day closing price, as applicable (b) The dynamic price bands shall be relaxed in increments of 1% as and when a market-wide trend is observed. (ii) Dynamic Price Bands for currency options contracts (including cross-currency options contracts) (a) For currency options, stock exchanges shall implement a dynamic price band mechanism based on theoretical price of contracts. (b) The dynamic price bands shall be relaxed as and when a market wide trend is observed in situations of high volatility. (iii) Stock exchanges shall frame suitable rules with mutual consultation for such relaxation of dynamic price bands and shall make it known to the market. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Trading Hours 09:00 a.m. to 07:30 p.m. 3. Size of the contract (i) EUR-USD: EUR 1,000 (ii) GBP-USD: GBP 1,000 (iii) USD-JPY: USD 1,000 4. Quotation (i) EUR-USD: The contract would be quoted in USD terms. The outstanding positions would be in Euro terms. (ii) GBP-USD: The contract would be quoted in USD terms. The outstanding positions would be in GBP terms. (iii) USD-JPY: The contract would be quoted in JPY terms. The outstanding positions would be in USD terms. 5. Available contracts (i) Futures contracts: Twelve (12) serial monthly contracts. (ii) Options contracts (Premium styled European Call and Put Options): Three (3) serial monthly contracts followed by three (3) quarterly contracts of the cycle March / June / September / December. 6. Strike price of option contracts Minimum of three (3) in-the-money, three (3) out-of the-money and one (1) near-the-money strikes shall be provided for all available contracts. 7. Last trading day The last trading day for the contracts shall be two working days prior to the last working day of the expiry month at 12:30 p.m. If any last trading day is a trading holiday, then the last trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed to take positions in the exchange traded cross-currency futures and options contracts without having to establish underlying exposure subject to the position limits as prescribed below: (i) Position limits for stock brokers (banks and non-bank), Category I II FPIs, Domestic Institutional investors (DIIs) as permitted by the respective sectoral regulators and AD Category I banks Currency Pair Position limits EUR-USD Gross open position across all contracts shall not exceed 15% of the total open interest or EUR 100 million, whichever is higher GBP-USD Gross open position across all contracts shall not exceed 15% of the total open interest or GBP 100 million, whichever is higher. USD-JPY Gross open position across all contracts shall not exceed 15% of the total open interest or USD 100 million, whichever is higher. The aforementioned limits shall be the total limits available to the stock brokers for taking positions on proprietary basis and for positions of their clients. (ii) Position limits for propri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be 3.5 standard deviation and volatility range for generating the scenarios would be 3%. Since the margins shall be collected in INR, the price scanning range shall be scaled up by the total futures margin rate of the contract involving the quoted currency in cross-currency pair and INR. The initial margin so computed would be subject to a minimum of 2% for all cross-currency derivatives contracts. However, for first two days of trading, the initial margin shall be computed using a sigma of 1.15% for EUR-USD contracts, 0.95% for GBP-USD contracts and 0.60% for USD-JPY contracts. Thereafter, the sigma would be calculated using the methodology specified for currency futures in SEBI circular no. SEBI/DNPD/Cir-38/2008 dated August 06, 2008 and would be the standard deviation of daily logarithmic returns of futures price. For the purpose of calculation of option values, the following standard option pricing models - Black-Scholes, Binomial, Merton would be used. The initial margin shall be deducted from the liquid assets of the clearing member on an online, real time basis. (ii) Extreme Loss margin The extreme loss margin shall be deducted from the liquid assets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The benefit for a calendar spread would continue till expiry of the near month contract. The calendar-spread margin shall be charged in addition to the worst-scenario loss of the portfolio. (v) Settlement of Premium Premium would be settled in INR and would be paid in by the buyer in cash and paid out to the seller in cash on T+1 day. Until the buyer pays in the premium, the premium due shall be deducted from the available liquid assets on a real time basis. For arriving at the settlement value in INR for EUR-USD and GBP-USD contracts, the latest available RBI reference rate for USD-INR shall be used. For USD-JPY contracts, the settlement value in INR shall be arrived at using the latest available exchange rate published by RBI for JPY-INR. (vi) Assignment Margin Assignment Margin shall be levied on assigned positions of the clearing members towards exercise settlement obligations for option contracts. For option positions exercised, the seller of the options shall be levied assignment margins which shall be 100% of the net exercise settlement value payable by a clearing member towards exercise settlement. Assignment margin shall be levied till the completion of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the final settlement price and assigned on a random basis to the open short positions of the same strike and series. 14. Position limits The position limits as prescribed in SEBI circulars CIR/MRD/DP/20/2014 dated June 20, 2014 and CIR/MRD/DP/30/2014 dated October 22, 2014 for EUR-INR, GBP-INR and JPY-INR currency pairs shall be the overall limits for the gross open positions across all contracts (both futures and options contracts) of the eligible participant in the respective currency pair. The existing position limits of USD 5 million per exchange for non USD-INR contracts, all put together, for residents and FPIs, without having to establish underlying exposure, shall remain unchanged. 15. Risk Management (i) Initial Margin The Initial Margin requirement would be based on a worst scenario loss of a portfolio of an individual client comprising his positions in options and futures contracts on the same underlying across different maturities and across various scenarios of price and volatility changes. In order to achieve this, the price range for generating the scenarios would be 3.5 standard deviation and volatility range for generating the scenarios would be 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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