Question : The Reserve Bank on Tuesday proposed allowing foreign portfolio investors (FPIs) to undertake exchange-traded rupee interest rate derivatives transactions subject to an overall ceiling of —
(a) Rs 5,000 crore.
(b) Rs 7,000 crore.
(c) Rs 8,000 crore.
(d) Rs 9,000 crore.
Answer (a)
Related facts
- The Reserve Bank on Tuesday(15 September 2020) proposed allowing foreign portfolio investors (FPIs) to undertake exchange-traded rupee interest rate derivatives transactions subject to an overall ceiling of Rs. 5,000 crore.
- Interest Rate Derivatives (IRD) are contracts whose value is derived from one or more interest rates, prices of interest-rate instruments, or interest rate indices.
- The proposed Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2020 are aimed at encouraging higher non-resident participation, enhance the role of domestic market makers in the offshore market, improve transparency, and achieve better regulatory oversight, according to the RBI.
- FPIs may transact in permitted exchange-traded IRDs subject to the conditions that, at any point in time “the net long position of FPIs, collectively, and across all exchanges, in exchange-traded IRDs shall not exceed Rs 5,000 crore”, the draft regulations suggested.
- Also, the net short position of an FPI on exchange-traded IRDs should not exceed its long position in government securities and other rupee debt securities.
- The draft further said for the purpose of offering Rupee IRD contracts to a user, the market-maker (entities which provide bid and offer prices to users in order to provide liquidity to the market) should classify the user either as a retail user or as a non-retail user.
- Non-retail users, as per the draft, are entities regulated by RBI, SEBI, IRDAI or PFRDA; resident companies with a minimum net worth of Rs 500 crore; and non-residents, other than individuals.
- “Any user who is not eligible to be classified as a non-retail user shall be classified as a retail user,” it said.
By – Pankaj Pandey