(1) These regulations may be called the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000.

(2) They shall come into force on the 1st day of June, 2000.

In these regulations, unless the context requires otherwise,

(i) Act means the Foreign Exchange Management Act, 1999 (42 of 1999);

2[(ii) Authorised Dealer means a person authorised as such by Reserve Bank under sub-section (1) of Section 10 of the Act;]

(iii) 3[* * *]

(iv) 4[* * *]

5[(v) Foreign Exchange Derivative Contract means a financial contract which derives its value from the change in the exchange rate of two currencies at least one of which is not Indian Rupee or which derives its value from the change in the interest rate of a foreign currency and which is for settlement at a future date i.e. any date later than the spot settlement date, provided that contracts involving currencies of Nepal and Bhutan shall not qualify under this definition.]

(v-a) 6[* * *]

(vi) 7[* * *]

(vii) Schedule means a schedule annexed to these regulations;

(viii) 8[* * *]

(ix) 9[* * *]

(x) the words and expressions used but not defined in these regulations shall have the same meanings respectively assigned to them in the Act.

(xi) 10[* * *]

11[(xii) Contracted exposure refers to currency risk arising on account of current and capital account transactions permissible under the Act or any rules or regulations made thereunder, that have been entered into;

(xiii) Anticipated exposure refers to currency risk arising on account of current and capital account transactions permissible under the Act or any rules or regulations made thereunder, that are proposed to be entered into in future;

(xiv) Currency risk means the potential for loss on account of movement in exchange rates of Rupee against a foreign currency or on account of movement in exchange rates of one foreign currency against another or on account of movement of interest rate applicable to a foreign currency;

(xv) Hedging means the activity of undertaking a foreign exchange derivative transaction to manage currency risk:

(xvi) Exchange traded currency derivatives means a standardised foreign exchange derivative contract traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract.]

Save as otherwise provided in these regulations, no person in India shall enter into a foreign exchange derivative contract 12[or currency futures] without the prior permission of the Reserve Bank.

13[ A person, whether resident in India or resident outside India, may enter into a foreign exchange derivative contract or exchange traded currency derivative contract in accordance with provisions contained in Schedule I of this regulation.]

14[* * *]

5-A. Permission to a person resident in India to enter into currency futures or currency options. 15[* * *]

5-B. Permission to a person resident outside India to enter into exchange traded currency derivatives. 16[* * *]

5-C. Permission to resident and non-resident entities to undertake hedge transactions with simplified procedures. 17[* * *]

18[(i) Reserve Bank may, on an application made in accordance with the procedure specified in Schedule III permit, subject to such terms and conditions as it may consider necessary, a person resident in India to enter into a contract in a commodity exchange or market outside India to hedge price risk in a commodity.

(ii) Notwithstanding anything contained in sub-regulation (i), an authorised dealer bank 19[* * *] may permit a company, resident in India 20[* * *], to enter into contracts in a commodity exchange or market outside India, to hedge the price risk in a commodity 21[* * *] subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time:

22[* * *]

23[* * *]

24[(iii)] Notwithstanding anything contained in this regulation a unit in the Special Economic Zone (SEZ) may enter into contracts in a commodity exchange or market outside India to hedge the price risk of the commodity of export/import, subject to the condition that such contract is entered into on a stand-alone basis.

Explanation. The term stand-alone means that the unit in the SEZ is completely isolated from financial contracts with its parent or subsidiary in the mainland or within the SEZ(s) as far as its import/export transactions are concerned.]

25[6-A. Freight hedge. (i) Reserve Bank may, on an application made in accordance with such procedure as may be directed by Reserve Bank, permit a person resident in India, subject to such terms and conditions as may be considered necessary, to enter into a freight derivative contract in an exchange or a market outside India to hedge the freight risk such person is exposed to.

(ii) Notwithstanding anything contained in sub-regulation (i) an authorised dealer in India 26[specially authorized in that behalf by the Reserve Bank] may permit an oil refining company or a shipping company, resident in India, to enter into freight derivative contracts in an exchange or market outside India, to hedge the freight risk which the company is exposed to, subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time:

Provided that such authorised dealer Category-I bank shall exercise the authority subject to directions and guidelines issued to them by the Reserve Bank in that behalf.]

An authorised dealer in India may remit outside India foreign exchange in respect of a transaction, undertaken in accordance with these regulations, in the following cases, namely;

(a) option premium payable by a person resident in India to a person resident outside India,

(b) remittance by a person resident in India of amount incidental to a foreign exchange derivative contract entered into in accordance with Regulation 4,

(c) remittance by a person resident outside India of amount incidental to a foreign exchange derivative contract entered into in accordance with 27[Regulation 4],

(d) any other remittance related to a foreign exchange derivative contract approved by Reserve Bank.

28[An authorised dealer in India may remit outside India foreign exchange in respect of a transaction, undertaken in accordance with these regulations, in the following cases, namely:

(a) option premium payable by a person resident in India to a person resident outside India;

(b) remittance by a person resident in India of amount incidental to a commodity derivative contract entered into in accordance with Regulation 6,

(c) any other remittance related to a commodity derivative contract approved by Reserve Bank.]

(See Regulation 4)

29[Permissible foreign exchange derivative contract]

30[1. A person, whether resident in India or resident outside India, may enter into a foreign exchange derivative contract with an authorised dealer. Contracts involving Rupee subject to the following condition(s):

i. that such contracts shall be for the purpose of hedging a contracted or anticipated exposure:

Provided that contracts not based on a contracted or anticipated exposure may be undertaken, as may be permitted by the Reserve Bank of India Provided further that transactions that involve the Rupee but are settled by delivery of a foreign currency shall be undertaken only by an authorised dealer or a person not resident in India and such other persons as may be permitted by the Reserve Bank of India, in terms of the directions issued in this regard by the Reserve Bank of India.

ii. that such person shall share the details of the exposure with the authorised dealer when called upon to do so by the authorised dealer.

2. A person may enter into an exchange traded currency derivative contract on an exchange recognised under section 4 of the Securities Contract (Regulation) Act, 1956. Contracts involving Rupee shall be subject to the following condition(s):

i. that such contracts shall be for the purpose of hedging a contracted exposure as defined in these regulations.

ii. that such person shall designate an Authorised Dealer in India for monitoring of their positions taken beyond such position limits as may be prescribed by the Reserve Bank of India to an exchange.

iii. that such person shall share the details of the contracted exposure with the Authorised Dealer when called upon to do so by the dealer.]

(See Regulation 5)

31[* * *]

(See Regulation 6)

1. A person resident in India, engaged in export-import trade 32[or as permitted by the Reserve Bank], who seeks to hedge price risk in respect of any commodity including Gold, 33[* * *] may submit an application to the International Banking Division of an authorised dealer giving the following details

(i) A brief description of the hedging strategy proposed; namely:

(a) description of business activity and nature of risk;

(b) instruments proposed to be used for hedging;

(c) name of commodity exchange and brokers through whom the risk is proposed to be hedged and credit lines proposed to be availed. The name and address of the regulatory authority in the country concerned may also be given;

(d) size/average tenure of exposure and/or total turnover in a year, together with expected peak positions thereof and the basis of calculation.

(ii) Copy of the Risk Management Policy approved by the Management covering:

(a) risk identification,

(b) risk measurements,

(c) guidelines and procedures to be followed with respect to revaluation and/or monitoring of positions,

(d) names and designations of the officials authorised to undertake transactions and limits.

(iii) Any other relevant information.

34[2. Authorised dealer, after ensuring that the application is supported by documents indicated in Paragraph 1, as may be relevant, may forward the application with its recommendations to the Reserve Bank of India, where applicable. In all other cases, the application may be forwarded by the company concerned to an authorised dealer bank authorised to grant permission under sub-regulation (ii) of Regulation 6, for consideration.]

1. Reserve Bank of India (Exchange Control Department), Noti. No. 411(E), dated 3 May, 2000, published in the Gazette of India, Extra., Part II, Section 3(i), dated 8-5-2000.

2. Subs. by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to substitution it read as: (ii) Authorised Dealer means a person authorised as authorised dealer under sub-section (1) of Section 10 of the Act;

3. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: (iii) Cash Delivery means delivery of foreign exchange on the day of transaction;

4. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: (iv) Forward Contract means a transaction involving delivery, other than Cash or Tom or Spot delivery, of foreign exchange;

5. Subs. by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to substitution it read as: (v) Foreign Exchange Derivative Contract means a financial transaction or an arrangement in whatever form and by whatever name called, whose value is derived from price movement in one or more underlying assets, and includes, (a) a transaction which involves at least one foreign currency other than currency of Nepal or Bhutan, or (b) a transaction which involves at least one interest rate applicable to a foreign currency not being a currency of Nepal or Bhutan, or (c) a forward contract, but does not include foreign exchange transaction for Cash or Tom or Spot deliveries;

6. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: (v-a) Currency Futures means a standardised foreign exchange derivative contract traded on a recognised stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract;]

7. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: (vi) Registered Foreign Institutional Investor (FII) means a foreign institutional investor registered with Securities and Exchange Board of India;

8. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: (viii) Spot Delivery means delivery of foreign exchange on the second working day after the day of transaction;

9. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: (ix) Tom Delivery means delivery of foreign exchange on a working day next to the day of transaction;

10. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: (xi) Qualified Foreign Investor (QFI) means a person resident outside India as defined in Regulation 2 of FEMA 20/RB-2000, dated 3 May, 2000.

11. Added by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020).

12. Ins. by G.S.R. 577(E), dated 1-8-2008 (w.e.f. 5-8-2008).

13. Subs. by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to substitution it read as: 4. Permission to a person resident in India to enter into a Foreign Exchange Derivative Contract. A person resident in India may enter into a foreign exchange derivative contract in accordance with provisions contained in Schedule I, to hedge an exposure to risk or otherwise, in respect of a transaction permissible under the Act, or rules or regulations or directions or orders made or issued thereunder.

14. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: 5. Permission to a person resident outside India to enter into a Foreign Exchange Derivative Contract. A person resident outside India may enter into a foreign exchange derivative contract with a person resident in India in accordance with provisions contained in Schedule II, to hedge an exposure to risk in respect of a transaction permissible under the Act, or rules or regulations or directions or orders made or issued thereunder.

15. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: 5-A. Permission to a person resident in India to enter into currency futures or currency options. A person resident in India may enter into currency futures or currency options on a stock exchange recognised under Section 4 of the Securities Contract (Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to such terms and conditions as may be set forth in the directions issued by the Reserve Bank of India from time to time.

16. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: 5-B. Permission to a person resident outside India to enter into exchange traded currency derivatives. A person resident outside India who is exposed to Rupee currency risk arising out of: (i) a permitted current account transaction; or (ii) a Rupee denominated asset held by him or a Rupee denominated liability incurred by him, as permitted under FEMA, 1999, may transact currency derivatives contracts on a stock exchange recognised under Section 4 of Securities Contracts (Regulations) Act, 1956 to hedge such exposure, subject to such terms and conditions as may be set forth in the directions issued by the Reserve Bank of India from time to time.

17. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020). Prior to deletion it read as: 5-C. Permission to resident and non-resident entities to undertake hedge transactions with simplified procedures. Notwithstanding anything contained in Paras 4, 5, 5-A and 5-B, resident entities with foreign currency exposures and non-resident entities with rupee exposures, other than individuals, may hedge underlying exchange rate risk arising out of transactions permitted under Foreign Exchange Management Act, 1999, or rules or regulations or directions or orders made or issued thereunder, subject to such simplified terms and conditions as may be set forth in the directions issued by the Reserve Bank from time to time.

18. Subs. by G.S.R. 223(E), dated 16-4-2006 (w.r.e.f. 23-7-2005).

19. Subs. for specially authorized in that behalf by the Reserve Bank by G.S.R. 330(E), dated 18-2-2013 (w.r.e.f. 17-1-2012).

20. The words and listed on a recognized stock exchange omitted by G.S.R. 895(E), dated 5-11-2009 (w.r.e.f. 3-6-2008).

21. The words imported/exported by it omitted by G.S.R. 760(E), dated 17-9-2007 (w.r.e.f. 31-5-2007).

22. Proviso omitted by G.S.R. 330(E), dated 18-2-2013 (w.r.e.f. 17-1-2012).

23. Sub-regulation (3) omitted by G.S.R. 330(E), dated 18-2-2013 (w.r.e.f. 17-1-2012).

24. Sub-regulation (iv) renumbered by G.S.R. 330(E), dated 18-2-2013 (w.r.e.f. 17-1-2012).

25. Ins. by G.S.R. 440(E), dated 20-5-2009 (w.r.e.f. 4-2-2009).

26. Subs. for specially authorised by the Reserve Bank under sub-regulation (ii) of Regulation 6 by G.S.R. 330(E), dated 18-2-2013 (w.r.e.f. 17-1-2012).

27. Replaced for Regulation 5 by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020).

28. Ins. by G.S.R. 760(E), dated 17-9-2007 (w.r.e.f. 23-7-2005).

29. The words Foreign exchange derivative contract permissible for a person resident in India renamed by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020).

30. Subs. by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020).

31. Deleted by Noti. No. FEMA.398/RB-2020, dt. 18-2-2020 (w.e.f. 3-3-2020).

32. Added by G.S.R. 881(E), dated 21-10-2003 (w.e.f. 11-11-2003).

33. The words but excluding oil and petroleum products, omitted by G.S.R. 756(E), dated 5-9-2000 (w.e.f. 5-9-2000).

34. Subs. by G.S.R. 223(E), dated 16-4-2006 (w.r.e.f. 23-7-2005).