SEBI Sets $5 Million Threshold for Rupee Derivative Trades Without Exposure Proof

November 6, 2026

Curated by Gurdeep Singh, New Delhi
Updated: November 6, 2026, 11:33 a.m. IST

The Securities and Exchange Board of India has revised the exposure rules for rupee-linked currency derivatives traded on recognised exchanges. From the earlier $100 million threshold, the amount that domestic clients and foreign portfolio investors (FPIs) may hold without establishing an underlying exposure is now a single combined limit of $5 million in notional value outstanding at any point.

The limit applies across every currency pair involving the Indian rupee and across all recognised stock exchanges. In practical terms, a participant cannot treat each pair or exchange as carrying a separate $5 million allowance. The calculation concerns the notional value of open positions, rather than the margin deposited or the cash paid to enter a contract.

The November 5 circular modifies the exchange framework in SEBI’s December 2024 master circular. It follows the Reserve Bank of India’s October 10 reduction of the threshold for INR-involving foreign-exchange derivatives. The RBI’s earlier no-underlying threshold had been $100 million; SEBI’s circular carries the revised $5 million figure into the exchange-traded segment.

What the $5 million threshold means

The threshold is the amount of INR-linked derivative positions that can be outstanding without the participant having to establish an underlying business or investment exposure. For example, a client with $3 million equivalent in one INR pair and $2.5 million equivalent in another would have $5.5 million in aggregate positions across those contracts. The positions cannot be assessed as separate allowances simply because they sit in different pairs or on different exchanges.

Crossing $5 million does not automatically mean that all currency derivatives are prohibited. It means the participant must meet the conditions that apply to their category and have the required underlying exposure where the rules call for it. The route above the threshold is different for domestic clients and FPIs.

Rules for FPIs

FPIs may take long or short INR-linked positions without proving an underlying exposure up to the single $5 million equivalent limit. In addition, their short positions across all foreign-currency-to-rupee contracts and all stock exchanges must not exceed $5 million.

For long positions above $5 million across FCY-INR contracts, FPIs must have an underlying exposure in Indian debt or equity securities. The circular includes units of debt and equity mutual funds among the eligible securities. This makes the FPI requirements more specific than a simple overall trading cap: short exposure has its own ceiling, while larger long positions need qualifying Indian securities exposure.

Rules for domestic clients

Domestic clients can also hold long or short positions without establishing an underlying exposure up to the combined $5 million limit. They may take positions above that level only subject to the RBI’s Master Direction on Risk Management and Inter-Bank Dealings, as amended, and its October 10 circular.

The RBI requirements include controls around hedging contracted exposures. Among other things, an authorised dealer must obtain an undertaking that the same exposure has not been hedged through another authorised dealer, or details of the amounts already hedged where an exposure is covered in parts. Supporting documents must be retained for at least two years. The RBI also restricts rebooking cancelled INR derivative contracts, while allowing rollovers at maturity subject to the applicable conditions.

What exchanges and market users need to do

SEBI has directed stock exchanges and clearing corporations to put implementation systems in place, make consequential changes to their rules and bye-laws, notify brokers and clearing members, publish the provisions on their websites, and report implementation status to the regulator. The circular does not set out a separate calendar date for each venue’s system changes, so users should watch for exchange-level implementation notices.

For companies and investors, the practical review is broader than checking a single trading account. Positions must be considered across INR pairs and recognised exchanges. Participants should identify whether they are classified as domestic clients or FPIs, calculate the notional value of open positions, and confirm the exposure and documents required before taking positions above the threshold.

Why the change matters

Currency derivatives let businesses manage exchange-rate risk and allow investors to take currency positions. The old $100 million no-proof threshold gave market participants substantially more room to maintain positions without demonstrating an underlying exposure. The new $5 million level narrows that allowance and makes the evidence requirements relevant at a much lower aggregate position size.

The revised framework is intended to keep exchange-traded limits consistent with the RBI’s rules for INR-involving foreign-exchange derivatives. Its effects will depend on a participant’s open positions, investor category and available underlying exposure. A trader who stays below the aggregate limit faces a different documentation position from a domestic client above it or an FPI seeking a larger long position.