SEBI Revises Currency Derivatives Limits, Sets USD 5 Million Threshold for Underlying Exposure

The Securities and Exchange Board of India (SEBI) has revised the limits governing when participants in currency derivatives must establish underlying exposure, according to a circular dated November 5, 2026 [1].

The Securities and Exchange Board of India (SEBI) has revised the limits governing when participants in currency derivatives must establish underlying exposure, according to a circular dated November 5, 2026 [1].

The amendment modifies Clause 5.3.3 of SEBI’s Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024, and is further to Clause 5.3.2.3 of that circular. The SEBI circular is numbered HO/(561)2026-MRD-POD2/ I/25177/2026 [1].

The revision follows the Reserve Bank of India’s (RBI) A.P. (DIR Series) Circular No. 25 dated October 10, 2026, on Risk Management and Inter-Bank Dealings, which revised threshold limits for taking positions in foreign exchange derivatives involving the Indian rupee without establishing underlying exposure. The RBI circular also prescribed additional requirements relating to the cancellation and rebooking of foreign exchange derivative contracts and documentation for hedging contracted exposures [1].

Under the revised framework, domestic clients and foreign portfolio investors (FPIs) may take long or short positions in currency derivatives contracts involving the Indian rupee without having to establish underlying exposure, up to a single limit of USD 5 million equivalent of notional value outstanding at any point. This limit applies across all currency pairs involving the rupee, taken together, and combined across all recognised stock exchanges [1].

FPIs must ensure that their short positions at all stock exchanges across all contracts in foreign currency-Indian rupee pairs do not exceed USD 5 million [1]. To take long positions above USD 5 million in all such contracts, FPIs will be required to have underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds [1].

Domestic clients may take positions above USD 5 million across all foreign currency-Indian rupee contracts, subject to conditions set out in the RBI’s Master Direction on Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended from time to time, and RBI A.P. (DIR Series) Circular No. 25 dated October 10, 2026 [1].

SEBI stated that all other requirements, terms and conditions in the December 30, 2024 master circular remain unchanged except to the extent modified by the new circular or otherwise directed by SEBI [1].

The regulator directed stock exchanges and clearing corporations to put implementation systems in place, including consequential amendments to relevant bye-laws, rules and regulations; bring the provisions to the notice of stock brokers and clearing members and disseminate them on their websites; and communicate the implementation status to SEBI [1].

The circular was addressed to all stock exchanges, clearing corporations, depositories, designated depository participants through depositories, custodians of securities, and foreign portfolio investors through their DDPs [1].

The circular was issued in exercise of powers under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect investor interests and promote the development and regulation of the securities market [1]. It was signed by Meetu Aggarwal, Deputy General Manager [1].

SEBI did not disclose the earlier threshold that has been replaced, nor did the circular specify a separate commencement date for the revised provisions [1].

The change aligns SEBI’s currency derivatives framework with the RBI’s October 2026 revision of foreign exchange derivative thresholds for rupee transactions [1].

Market participants trading rupee currency derivatives on recognised stock exchanges must now track whether their combined notional positions stay within the USD 5 million threshold if they do not hold underlying exposure [1].

Exchanges and clearing corporations must update systems and rules, while brokers, clearing members, custodians, and FPIs through DDPs are brought under the revised disclosure and compliance requirements [1].

The circular does not state the previous threshold or a separate effective date, so the precise scale of the change from the earlier limit cannot be determined from the provided document [1].