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It had been
decided to permit resident exporters and importers to write (sell) standalone
plain vanilla European call and put option contracts against their contracted
exposure, to any AD Cat-I bank in India. The amended guidelines are as given
below:
Writing of Covered Call and Put
Currency Option contracts by Indian exporters and importers
1.
Participants
a.
Market-makers:
AD Category-I banks in India who have Reserve Bank’s approval to run
cross-currency and foreign currency-Indian Rupee options books.
b.
Users:
Listed companies and their subsidiaries/joint ventures/associates having common
treasury and consolidated balance sheet or unlisted companies with a minimum
net worth of Rs. 200 crore provided appropriate disclosures are made in the
financial statements.
2.
Product
a.
Covered
Call: A resident exporter may write (sell) a standalone plain vanilla European
call option contract to an AD Category-I bank in India against the cover of
contracted exposure arising out of exports of goods and services from India.
b.
Covered
Put: A resident importer may write (sell) a standalone plain vanilla European
put option contract to an AD Category-I bank in India against the cover of
contracted exposure arising out of imports of goods and services into India.
c.
The
use of Covered option shall not be considered as a hedging strategy.
d.
Covered
call and covered put options shall be treated as structured derivative products.
a.
All
the guidelines governing derivative products in general and structured products
in particular of the circular will apply, mutatis mutandis, to covered options.
b.
AD
Category-I banks may enter into covered options with their exporter or importer
constituents only after obtaining specific approval and as per the terms and
conditions on running Cross Currency and Foreign Currency – INR options book.
c.
The
responsibility of assessing the strength of risk management systems, financial
soundness of the option writer shall rest with the concerned AD Cat-I bank. AD
Category I banks may stipulate safeguards, such as, continuous profitability,
higher net worth, turnover, etc. depending on the scale of forex operations and
risk profile of the option writers.
d.
Covered
options may be written against either a portion or the full value of the
underlying.
e.
AD
Cat-I banks shall treat the exposures against which a covered option has been
written as an “unhedged exposure”.
f.
Covered
option contracts may be written for a period up to the maturity of the
underlying subject to a maximum maturity period of 12 month.
g.
Covered
options may be freely cancelled and rebooked subject to the verification of the
underlying by the AD Cat-I bank concerned.
h.
For
eligible underlying contracted exposures, the option seller may write the
covered option either as a single FCY-INR option or as separate options for the
FCY-USD and USD-INR legs.
i.
The
operational guidelines and terms and conditions as laid down under “Contracted
Exposures” – Forward Foreign Exchange Contracts, Cross Currency Options (not
involving Rupee) and Foreign Currency-INR Options shall be applicable to covered options to the extent relevant.
j.
Except
as mentioned in these guidelines, covered options shall not be undertaken in
combination with any other derivative or cash instrument.
k.
As
provided under Comprehensive Guidelines on Derivatives, authorised dealers may maintain cash margin /
liquid collateral in respect of covered options sold to them by exporters and
importers, if necessary.
l.
AD
Cat-I banks entering into covered options with their constituents may report
the same to CCIL’s reporting platform for OTC foreign exchange derivatives.
4.
In addition to the above, “General Instructions for
OTC forex derivative contracts entered by Residents in India,” shall be
applicable, mutatis mutandis, to covered
options.
Based on RBI circular dated 23/06/2016/ For further
clarification please refer www.rbi.org.in ………..Poppy
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