Currency derivatives volumes fall sharply as RBI’s exposure norms kick in

Currency derivatives volumes fall sharply as RBI’s exposure norms kick in


Volumes in the currency derivatives market in terms of average daily turnover and number of open interest futures contracts fell sharply, as the Reserve Bank of India’s (RBI) rules on trades being covered by underlying exposure kicked in today.

As per the National Stock Exchange of India’s (NSE) data, the average daily turnover has fallen 98 percent and open interest futures contracts have dropped around 49 percent between January 5 and May 2.


The RBI, on January 5, had said that investors must have valid underlying contracted exposure which has not been hedged using any other derivative contract, and they should be in a position to establish the same if required.

The initial implementation date of the RBI circular was April 5, which was later extended to May 3 after concerns were raised about participation in the exchange-traded currency derivatives (ETCD) market.

Yes, that’s correct. There was a significant drop in currency derivatives trading volumes in April 2024, just ahead of a new Reserve Bank of India (RBI) rule coming into effect on May 3rd, 2024.

The new rule requires market participants to have underlying exposure for their currency derivative positions. This means they need to have a legitimate reason for trading these financial instruments, not just speculation.

Previously, retail investors were a major driver of currency futures and options trading, but many lacked this underlying exposure. So, as the May 3rd deadline approached, they squared off their positions, leading to a sharp decline in trading volumes.

Here’s a summary of the situation:

  • Reason for Drop: RBI’s new exposure norms for currency derivatives.
  • Impact: Average daily turnover in April fell by 87% compared to March.
  • Cause of Previous Volume: Retail investors who are now restricted by the new rule.


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