Zerodha told its clients to close FX derivatives position before April 5 in order to comply with new RBI norms. With this, Zerodha is among the first brokerage that asked clients to close out contracts after exchanges reaffirmed the ruling from the central bank. As per RBI's rule, participants must have an actual foreign-exchange exposure although this rules out individual traders and speculators.
What Zerodha said on RBI guidelines?
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“As per RBI guidelines, traders need to have exposure to the underlying currency to trade in currency derivatives on the stock exchange. Please ensure to close your open position before 05th April 2024 to be compliant with RBI rules," the firm said in a post on X (formerly Twitter).
What Nithin Kamath said on RBI's action?
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The rule also aligns with the Reserve Bank of India's (RBI) broader foreign exchange management policy. Following the development, Zerodha founder Nithin Kamath wrote in a post on X (formerly Twitter) that this will be “the death of currency derivative trading on stock exchanges by retail traders” as the move could push out market's most active players.
“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,” he said.
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{{/usCountry}}“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,” he said.
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{{/usCountry}}Meanwhile, Nuvama said that the impact of the new rule will be seen over the next month.
What users need to do next?
From April 4, users can exit their current positions but will not be allowed to take fresh positions in currencies. Those who wish to take fresh positions, will have to submit the declaration form.