Currency derivatives: SEBI aligns the no-underlying limit with RBI at USD 5 million across exchanges
TaxByKK · Compliance News · taxbykk.com5 Nov 2026
In short
SEBI has revised the limit up to which domestic clients and Foreign Portfolio Investors may hold INR currency derivative positions on stock exchanges without showing an underlying exposure. The limit is now a single USD 5 million equivalent of notional value across all INR currency pairs and all exchanges, in line with RBI's circular of 10 October 2026.
- Authority
- SEBI, Market Regulation Department
- Circular
- HO/(561)2026-MRD-POD2/I/25177/2026 dated 5 November 2026
- Type
- Circular
- Modifies
- Clause 5.3.3 of the Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024
- Linked RBI circular
- A.P. (DIR Series) Circular No. 25 dated 10 October 2026 on Risk Management and Inter-Bank Dealings (enclosed)
- Addressed to
- Stock exchanges, clearing corporations, depositories, DDPs, custodians and FPIs
What changed
| Item | Before | Now |
|---|---|---|
| Limit without underlying exposure | Earlier limits in clause 5.3.3 | Single limit of USD 5 million equivalent notional value outstanding, across all INR currency pairs and all recognised exchanges |
| FPI short positions | — | Must not exceed USD 5 million across all FCY-INR contracts on all exchanges |
| FPI long positions above USD 5 million | — | Need an underlying exposure in Indian debt or equity securities, including equity or debt mutual fund units |
| Domestic clients above USD 5 million | — | Allowed subject to RBI's Master Direction of 5 July 2016 and RBI circular No. 25 of 10 October 2026 |
RBI's circular, enclosed with SEBI's, also prescribes added requirements on cancelling and rebooking foreign exchange derivative contracts and on documentation for hedging contracted exposures; the SEBI circular refers readers to it for compliance and does not summarise it. SEBI's circular does not state a separate effective date. Exchanges and clearing corporations must set up systems, amend bye-laws and rules, tell brokers and clearing members, and report implementation status to SEBI.
Who it applies to
- Domestic clients and FPIs trading INR currency derivatives on exchanges
- Stock brokers and clearing members
- Stock exchanges, clearing corporations, custodians and DDPs
- CAs and lawyers advising on treasury and FEMA matters
What to do
- Track notional INR currency derivative positions against the USD 5 million combined limit across all exchanges.
- For FPIs, keep short positions within USD 5 million and hold an underlying Indian debt or equity exposure for long positions above that.
- For domestic clients above USD 5 million, review the RBI circular of 10 October 2026 on documentation and cancellation and rebooking.
Reference
SEBI circular HO/(561)2026-MRD-POD2/I/25177/2026, 5 November 2026, Revision of limits relating to requirement of underlying exposure for currency derivatives contracts; issued under section 11(1) of the SEBI Act, 1992.
Read the official PDF: SEBI circularWritten by TaxByKK from the official notification. Check the official text before you act on it.
Frequently asked questions
What is the new limit without underlying exposure?
USD 5 million equivalent of notional value outstanding, put together across all INR currency pairs and all recognised stock exchanges.
Does it apply to FPIs?
Yes. FPIs must keep short positions within USD 5 million, and need an underlying Indian debt or equity exposure for long positions above it.
From when does it apply?
The circular does not state an effective date.