In a bid to encourage non-banking trading brokers and small traders, the market regulator Securities and Exchange Board of India (SEBI) Tuesday doubled the position limits - predetermined level set by regulatory bodies for a specific contract or option - in exchange-traded currency derivatives.
According to the market watchdog, the gross outstanding limit for non-banking brokers has now extended to $50-million from earlier $25-million, while for small traders the prescribed margin has been extended to $10-million as against $5-million previously.
For the banks, SEBI has made no changes and they can trade up to their earlier prescribed limit of $100-million. However, banks are not active in this sort of forex trading as they have more efficient option of accessing over-the-counter (OTC) forex market.
This move by the regulator has come in the wake of market participants’ repeated plea to enhance the existing position limits, as the small limits were inadequate to effectively hedge their foreign currency exposure risks.
Now, after doubling the exposure, the volume of trading would further increase because of higher exposure and it would also encourage market participants.
However, SEBI has also clarified that the position limits would be specific to an exchange and not to the exchange-traded currency derivatives market as a whole. Presently, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and the Multi-Commodity Exchange (MCX) are the three entities that offer currency derivatives.
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