‘It didn’t come late, it came very, very late:’ Currency traders on RBI extension of FX derivatives deadline

Traders are venting their anger on the central bank’s circular on currency derivatives, even after the regulator extended its deadline by nearly a month.

On January 5, 2024, the Reserve Bank of India (RBI) asked stock exchanges to inform users that they must be able to establish (if required) that they have an underlying exposure to a currency–for example as an importer or exporter–before they can trade in currency derivatives.

Also read: Exchanges’ poor communication and not RBI’s circular causing losses in currency-derivatives, say sources

This was met with an uproar with various market participants claiming that the central bank has effectively killed the this trading segment. Traders were angry that they were given only few days to square off their positions since the exchanges informed the brokerages a few days before the earlier deadline of April 5. Since then, through an April 4 circular, the RBI has extended the deadline to May 3.

In the same circular, the central bank also informed that that the regulatory framework for exchange-traded currency derivatives (ETCDs) has remained constant over the years. That is, the January 5 circular, which was met with such a big resistance, did not really change the regulatory framework that was already set before.

Despite the new deadline extension and its clarification, traders are fuming at the banking regulator because they said that they have already incurred losses because of the circular.

“The extension didn’t come late, it came very, very late,” said a currency dealer to Moneycontrol.

He said that the people have already exited their positions are big losses and this extension will help only the few who are stuck in their positions.
“If they had done this on April 2, in the morning, then it would have helped. (April 1 was a bank holiday.) But I don’t blame the central bank, most of the fault lies with the exchanges for informing the traders in the last minute,” he said.

One trader posted online that this is a nice way for the RBI to avoid difficult questions tomorrow. On April 5, the RBI Monetary Policy Committee (MPC) is set to make announcements.

Another trader asked if the banking regulator can be trusted, because of such a change in stance.

The dealer quoted earlier said that the extension may not help improve liquidity in the segment because traders now believe that the trading segment itself will die.

“Which market in the world has survived with just hedgers, or just arbitragers, or just speculators? You need a healthy mix of all of them,” he said.

A senior executive of a brokerage too shared the same opinion. That the extension won’t help save the market and that the segment may slowly die out under these regulations.