MUMBAI: Indian regulators are in discussions to reassess stringent regulations governing exchange-traded currency derivatives, following appeals from exchanges and traders, three sources with direct knowledge of the matter said, in a potential effort to revive a market increasingly shifting offshore.
The Reserve Bank of India in 2024 reiterated a rule that currency derivative positions on exchanges should be backed by underlying exposures. While the rule had existed before then, it had not been strictly enforced, leading to a surge in speculative trading.
After the advisory, trading in the contracts – used to hedge against foreign exchange risks and speculate on currency movements – nosedived in India and rose overseas.
The average daily turnover in currency futures dropped to $766.84 million in October 2025 from $3.7 billion in March 2024 on the National Stock Exchange of India. In contrast, turnover for dollar/rupee futures - the most actively traded - rose to $3.2 billion from $1.8 billion in March 2024 at Singapore’s SGX.
While a formal review has not been initiated, top leadership of RBI and the Securities and Exchange Board of India are talking about tweaking rules to facilitate reopening the market to individual and proprietary traders with appropriate guardrails, two of the three sources said.
A final decision will rest with the central bank.
SPECULATION - A NECESSARY EVIL?
“The earlier stance was to frown upon speculative activity, this view is changing as speculation improves price discovery,” the first source said.
The sources declined to be named as the discussions are private in nature. Emails to SEBI and RBI sent on Wednesday were not answered.
The dwindling volumes confirm the RBI’s concern that this was a speculators’ market, the third source said.
“However, the segment was not creating any huge issue for domestic currency management. RBI deals with far more volatility from other segments,” this person said, adding that the central bank may reconsider the issue.
In order to prevent a spurt in speculation, traders have recommended tighter position limits, the first source said.
Before April 2024, investors could build positions of up to $100 million without evidence of underlying exposure.
“A limit of $100 million allowed many individual participants to speculate on rupee, which was RBI’s main concern. Market participants have suggested to reduce the limit to address the central bank’s worry,” the second source said.
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