Summary of this article
Sebi allows unhedged currency derivative positions up to $5 million
FPIs need Indian debt or equity exposure for higher long positions
Domestic investors can exceed the limit subject to RBI conditions
The Securities and Exchange Board of India (Sebi) has revised the limits for taking unhedged positions in currency derivatives, allowing domestic clients and foreign portfolio investors (FPIs) to take long or short positions of up to $5 million without establishing an underlying exposure.
The revised rules bring Sebi's regulations in line with the Reserve Bank of India's (RBI) October 10, 2026, circular. They apply to all rupee-linked currency derivatives across currency pairs and stock exchanges.
Under the revised norms, domestic clients and FPIs can take long or short positions up to a single limit of $5 million in notional value outstanding at any point, without having to establish an underlying exposure.
Sebi said in its November 5 circular, "Domestic clients and Foreign Portfolio Investors (FPIs) may take long or short positions in currency derivatives contracts involving INR, without having to establish the existence of underlying exposure, up to a single limit of USD 5 million equivalent of notional value (outstanding at any point), across all currency pairs involving INR, put together, and combined across all recognised stock exchanges."
The limit will be calculated collectively across all rupee-linked currency pairs and exchanges, rather than separately for individual currency pairs or stock exchanges.
What Do The Revised Sebi Norms Mean For FPIs
The regulator has also specified separate conditions for FPIs taking short and long positions beyond the prescribed threshold.
FPIs must ensure that their short positions across all stock exchanges and contracts in foreign currency-rupee pairs do not exceed $5 million. For taking long positions beyond the $5 million limit, they will have to demonstrate an underlying exposure in Indian debt or equity securities.
Sebi said FPIs seeking to take long positions beyond the threshold must have an underlying exposure in Indian debt or equity securities, including units of equity and debt mutual funds.
This means FPIs will be required to demonstrate exposure to Indian financial assets before building long positions beyond the permitted unhedged limit.
What About Domestic Investors
Domestic clients can also take long or short positions up to $5 million without establishing an underlying exposure. However, unlike FPIs, domestic clients can take positions beyond this threshold, subject to conditions specified by the RBI.
Sebi said domestic clients may take positions exceeding $5 million in foreign currency-rupee contracts, subject to the conditions specified in the RBI's Master Direction on Risk Management and Inter-Bank Dealings, as amended from time to time, and its October 10, 2026, circular.
Why Has Sebi Revised The Currency Derivatives Framework
The revision follows the RBI's October 10 circular, which changed the threshold for taking positions in foreign exchange derivatives involving the Indian rupee without establishing an underlying exposure.
Sebi has now modified the relevant provisions of its December 30, 2024, master circular for stock exchanges and clearing corporations to bring its framework in line with the central bank's revised requirements.
The regulator has also directed stock exchanges and clearing corporations to put the necessary systems in place to implement the revised provisions. They will have to make consequential amendments to their respective bye-laws, rules and regulations and inform stock brokers and clearing members about the changes.
All other rules in Sebi's December 30, 2024, master circular will continue to apply unless changed by the latest circular or through further directions from the regulator.
