Currency derivatives: no underlying exposure needed up to USD 5 million position
SEBI's circular dated 5 November 2026 sets the limit up to which currency derivatives positions can be taken without showing underlying exposure. It applies to domestic clients and Foreign Portfolio Investors (FPIs), not to ordinary savers or general investors.
What this means for you
This rule is for people and firms that trade currency derivatives on stock exchanges, and for foreign investors (FPIs). If you are an ordinary investor and do not trade currency derivatives, it does not affect you directly. Those who do trade should check the new limit with their broker or on the exchange website.
Key facts
- SEBI's circular is dated 5 November 2026.
- Domestic clients and FPIs may take long or short positions in INR currency derivatives up to USD 5 million equivalent notional value without establishing underlying exposure.
- This limit applies across all currency pairs involving INR and across all recognised stock exchanges put together.
- FPIs' short positions in FCY-INR contracts across all exchanges must not exceed USD 5 million.
- For long positions above USD 5 million, FPIs must have underlying exposure in Indian debt or equity securities.
- It follows RBI's A.P. (DIR Series) Circular No. 25 dated 10 October 2026.
What has changed
In a circular dated 5 November 2026, SEBI has changed one condition related to currency derivatives. Domestic clients and Foreign Portfolio Investors (FPIs) may now take long or short positions in currency derivatives contracts involving the Indian Rupee without having to establish that they have an underlying exposure. This is allowed up to a single limit of USD 5 million equivalent notional value.
The limit applies across all currency pairs involving INR and across all recognised stock exchanges put together. In other words, an investor’s positions on all exchanges are counted together against this limit.
Separate conditions for FPIs
FPIs must also ensure that their short positions across all contracts in FCY-INR pairs at all stock exchanges do not exceed USD 5 million.
If an FPI wants to take a long position above USD 5 million, it must have an underlying exposure in Indian debt or equity securities. This includes units of equity or debt mutual funds.
What applies to domestic clients
Domestic clients may take positions above USD 5 million, but they must follow the conditions in RBI’s Master Direction - Risk Management and Inter-Bank Dealings dated 5 July 2016 and RBI’s circular dated 10 October 2026.
Why this was done
RBI, in its A.P. (DIR Series) Circular No. 25 dated 10 October 2026, revised the threshold limits for taking positions in foreign exchange derivatives involving the Indian Rupee without establishing underlying exposure. RBI also prescribed additional requirements relating to cancellation and rebooking of foreign exchange derivative contracts and documentation for hedging contracted exposures.
SEBI has modified the relevant clause of its Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024 to match this. All other requirements remain unchanged.
What happens next
SEBI has directed stock exchanges and clearing corporations to put in place systems to implement the circular, including necessary amendments to their bye-laws, rules and regulations. They must bring the provisions to the notice of stock brokers and clearing members and disseminate them on their websites. They must also communicate the status of implementation to SEBI.
Impact on ordinary people
This rule is for people and firms that trade currency derivatives on stock exchanges, and for foreign investors. If you are an ordinary investor and do not trade currency derivatives, it does not affect you directly. Those who do trade can check the new limit with their broker or on the exchange website.
Questions and answers
What is the new limit for underlying exposure in currency derivatives?
Domestic clients and FPIs may take long or short positions in INR currency derivatives up to USD 5 million equivalent notional value without establishing underlying exposure. The limit applies across all INR currency pairs and all exchanges put together.
Does this rule apply to ordinary investors?
No, it applies to domestic clients and FPIs trading currency derivatives. People who do not trade currency derivatives are not directly affected.
What must FPIs keep in mind for short positions?
FPIs must ensure their short positions across all contracts in FCY-INR pairs at all stock exchanges do not exceed USD 5 million.
Who can take positions above USD 5 million?
FPIs can take long positions above USD 5 million only if they have underlying exposure in Indian debt or equity securities. Domestic clients can do so subject to RBI's Master Direction and its circular dated 10 October 2026.
Why was this change made?
RBI revised the threshold for taking positions in INR foreign exchange derivatives without underlying exposure in its circular dated 10 October 2026. SEBI changed its Master Circular provisions accordingly.
Source: SEBI, "Revision of limits relating to requirement of underlying exposure for currency derivatives contracts", 5 November 2026. Read the original notice
This routine notice was drafted with AI from an official source and published automatically; an editor reviews it after publishing. Report an error