The central bank’s broader objective has been to curb volatility in the currency at a time when foreign funds have been pouring in money into the nation’s bond markets.
Nithin Kamath
Hours after Zerodha told its clients to close FX derivatives position before April 5 to comply with new RBI norms, the firm’s founder Nithin Kamath wrote in a post on X that this will be “the death of currency derivative trading on stock exchanges by retail traders”.
The move is expected to force out most of the market’s most active players, drying up volumes that reached $5 billion-a-day.
“I have said this before, regulatory risk is by far the biggest risk for stock brokers. The RBI has its own reasons for restricting unhedged currency derivatives, but this means the death of currency derivative trading on stock exchanges by retail traders.
The central bank’s broader objective has been to curb volatility in the currency at a time when foreign funds have been pouring in money into the nation’s bond markets since JPMorgan Chase & Co.’s landmark announcement in September.
The authority has built up forex reserves to a record $643 billion as a buffer against external shocks. It uses all currency platforms including spot, forwards and currency futures to intervene in the currency market.
The impact of the new rule will be seen over the next month, according to Nuvama.
“This requirement of underlying will practically kill the volumes in currency derivatives,” said Dilip Parmar, currency strategist at HDFC Securities Ltd.
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