[G.S.R. 411 (E)] ^{5   7   8} 

In exercise of the powers conferred by clause (h) of sub-section (2) of Section 47 of the Foreign Exchange Management Act,1999 (42 of 1999), the Reserve Bank makes the following regulations, to promote orderly development and maintenance of foreign exchange market in India, namely:-

(1)

These Regulations may be called the Foreign Exchange Management (Foreign exchange derivative contracts ) Regulations, 2000.

(2)

They shall come in force on the 1st day of June,2000.

In these Regulations, unless the context requires otherwise, -

(i)

'Act' means the Foreign Exchange Management Act,1999 (42 of 1999);

(ii)

'authorised dealer' means a person authorised as authorised dealer under subsection (1) of section 10 of the Act;

(iii)

'Cash delivery ' means delivery of foreign exchange on the day of transaction ;

(iv)

'Forward contract' means a transaction involving delivery, other than Cash or Tom or Spot delivery, of foreign exchange;

(v)

'Foreign exchange derivative contract' means a financial transaction or an arrangement in whatever form and by whatever name called, whose value is derived from price movement in one or more underlying assets, and includes,

(a)

a transaction which involves at least one foreign currency other than currency of Nepal or Bhutan, or

(b)

a transaction which involves at least one interest rate applicable to a foreign currency not being a currency of Nepal or Bhutan , or

(c)

a forward contract,

but does not include foreign exchange transaction for Cash or Tom or Spot deliveries;

(vi)

'Registered Foreign Institutional Investor (FII) ' means a foreign institutional investor registered with Securities and Exchange board of India;

(vii)

'Schedule' means a schedule annexed to these Regulations;

(viii)

'Spot delivery' means delivery of foreign exchange on the second working day after the day of transaction;

(ix)

'Tom delivery' means delivery of foreign exchange on a working day next to the day of transaction;

(x)

the words and expressions used but not defined in these Regulations shall have the same meanings respectively assigned to them in the Act.

Save as otherwise provided in these Regulations, no person in India shall enter into a foreign exchange derivative contract without the prior permission of the Reserve Bank.

A person resident in India may enter into a foreign exchange derivative contract in accordance with provisions contained in Schedule I, to hedge an exposure to risk in respect of a transaction permissible under the Act, or rules or regulations or directions or orders made or issued thereunder.

5.

Permission to a person resident outside India to enter into a Foreign Exchange Derivative contract.

A person resident outside India may enter into a foreign exchange derivative contract with a person resident in India in accordance with provisions contained in Schedule II, to hedge an exposure to risk in respect of a transaction permissible under the Act, or rules or regulations or directions or orders made or issued thereunder.

(i) Reserve Bank may, on an application made in accordance with the procedure specified in Schedule III permit, subject to such terms and conditions as it may consider necessary, a person resident in India to enter into a contract in a commodity exchange or market outside India to hedge the price risk in a commodity.

(ii) Notwithstanding anything contained in sub-regulation (i), an authorized dealer bank specially authorized in that behalf by the Reserve Bank may permit a company, resident in India and listed on a recognized stock exchange, to enter into contracts in a commodity exchange or market outside India, to hedge the price risk in a commodity imported/exported by it subject to such terms and conditions as may be stipulated by the Reserve Bank from time to time.

⁶Provided that such authorised dealer bank shall exercise such authority subject to the directions and guidelines issued to them by the Reserve Bank in that behalf. 

(iii) An authorised dealer bank may apply to the Reserve Bank of India, Foreign Exchange Department for grant of authority to grant permission under sub-regulation (ii) to its customers. 

(iv) Notwithstanding anything contained in this regulation a unit in the Special Economic Zone (SEZ) may enter into contracts in a commodity exchange or market outside India to hedge the price risk of the commodity of export/import, subject to the condition that such contract is entered into on a 'stand-alone' basis. 

Explanation: The term 'stand-alone' means that the unit in the SEZ is completely isolated from financial contracts with its parent or subsidiary in the mainland or within the SEZ(s) as far as its import/export transactions are concerned.

An authorised dealer in India may remit outside India foreign exchange in respect of a transaction, undertaken in accordance with these Regulations, in the following cases, namely:

(a)

option premium payable by a person resident in India to a person resident outside India;

(b)

remittance by a person resident in India of amount incidental to a foreign exchange derivative contract entered into in accordance with Regulation 4,

(c)

remittance by a person resident outside India of amount incidental to a foreign exchange derivative contract entered into in accordance with Regulation 5;

(d)

any other remittance related to a foreign exchange derivative contract approved by Reserve Bank.