RBI cuts forex derivative threshold to $5 million, bars rebooking of cancelled rupee contracts
Synopsis
The RBI has slashed the unhedged forex derivative threshold twenty-fold — from $100 million to just $5 million — and introduced a mandatory 20% cash reserve (FERR) on large rupee derivative contracts, effectively raising the cost and narrowing the scope of currency speculation in India's forex market. The bar on rebooking cancelled contracts takes effect immediately.
Key Takeaways
The RBI on 10 October 2026 cut the unhedged foreign exchange derivative threshold from $100 million to $5 million across all authorised dealers and recognised stock exchanges.
Authorised dealers are now barred from permitting rebooking of any cancelled rupee derivative contract — deliverable or non-deliverable — after the issuance of the new directions.
A new Foreign Exchange Risk Reserve (FERR) of 20 per cent of the rupee-equivalent notional amount must be maintained in cash daily for rupee derivative contracts exceeding $2 million in notional value.
Dealers must obtain undertakings from users confirming the same underlying exposure has not been hedged with any other authorised dealer, to prevent double-hedging.
Directions under Circular 25 are effective immediately; FERR rules under Circular 26 apply to contracts entered into after issuance.
Attempts to circumvent limits through multiple transactions will be treated as a direct regulatory violation .
The Reserve Bank of India (RBI) on Saturday, 10 October 2026, announced sweeping regulatory curbs on rupee-linked foreign exchange derivatives, slashing the unhedged transaction threshold from $100 million to $5 million and introducing a mandatory 20 per cent Foreign Exchange Risk Reserve (FERR) to clamp down on currency speculation and preserve market order.
Key Regulatory Changes
Under the new directions, authorised dealers are barred from permitting users to rebook any foreign exchange derivative contract involving the rupee — whether deliverable or non-deliverable — if that contract was cancelled with any authorised dealer after the issuance of the new directions. Rollover of contracts on maturity, however, will continue to be permitted.
The RBI has also sharply reduced the threshold for undertaking foreign exchange derivative transactions without establishing underlying exposure — from $100 million equivalent to $5 million equivalent — applying uniformly across all authorised dealers. The same threshold cut applies to positions in exchange-traded currency derivatives involving the rupee without underlying exposure, now capped at $5 million across all recognised stock exchanges.
The New Foreign Exchange Risk Reserve
For all rupee foreign exchange derivative contracts with a notional value exceeding $2 million equivalent undertaken to hedge current account exposures — where users purchase foreign currency against the rupee — authorised dealers must maintain with the RBI an FERR in cash equal to 20 per cent of the rupee equivalent of the notional amount. This reserve must be maintained daily until the contract is terminated.
Dealers are also required to report FERR details daily through the Centralised Information Management System. Any attempt by users to circumvent the requirement through multiple transactions will be treated as a direct violation, the central bank warned.
Undertaking and Compliance Requirements
Authorised dealers must now obtain and retain an undertaking from users entering into rupee foreign exchange derivative contracts to hedge contracted exposures, confirming that the same underlying has not been hedged with any other authorised dealer. This measure targets double-hedging — a practice that has reportedly been used to obscure the true scale of speculative positions.
When the Rules Take Effect
The RBI clarified that directions under Circular 25 come into force with immediate effect, while FERR directions under Circular 26 apply to contracts undertaken after the date of issuance. According to the central bank, the measures are designed to strengthen market discipline, ensure appropriate risk management, and maintain an orderly and transparent market environment.
Why This Move Matters
The tightening comes amid persistent concerns over speculative activity in the rupee derivatives market. By reducing the threshold twenty-fold — from $100 million to $5 million — the RBI has effectively narrowed the universe of entities that can take unhedged currency positions, bringing smaller but potentially disruptive players under tighter oversight. The FERR, functioning as a cash buffer, also raises the cost of large speculative bets, a mechanism broadly comparable to margin requirements used in equity derivatives. The rupee has faced intermittent pressure from global dollar strength and capital outflow cycles, making orderly hedging a macroprudential priority for the central bank.
Point of View
The central bank is effectively pricing out high-frequency speculative layering. What mainstream coverage may miss is that this also compresses the space for legitimate treasury operations at mid-sized corporates, who previously relied on the $100 million window for flexible currency management. The double-hedging prohibition, backed by undertakings, suggests the RBI has evidence of coordinated circumvention — and that the new rules are reactive as much as they are precautionary.
NationPress
10 Oct 2026
Frequently Asked Questions
What has the RBI changed about forex derivative thresholds?
The RBI has cut the threshold for undertaking unhedged foreign exchange derivative transactions — without establishing underlying exposure — from $100 million equivalent to $5 million equivalent, applicable across all authorised dealers and recognised stock exchanges. The same limit now applies to exchange-traded currency derivatives involving the rupee.
What is the Foreign Exchange Risk Reserve (FERR) introduced by the RBI?
The FERR is a mandatory 20 per cent cash reserve that authorised dealers must maintain with the RBI on rupee derivative contracts with a notional value exceeding $2 million, where users purchase foreign currency against the rupee to hedge current account exposures. It must be maintained daily until the contract is terminated and reported through the Centralised Information Management System.
Why has the RBI barred rebooking of cancelled rupee derivative contracts?
The RBI has prohibited authorised dealers from allowing users to rebook any cancelled rupee derivative contract — deliverable or non-deliverable — to prevent speculative positions from being re-established after cancellation. Rollover of contracts on maturity remains permitted.
When do the new RBI forex derivative rules take effect?
Directions under Circular 25, including the ban on rebooking cancelled contracts and the lower threshold, take effect immediately from the date of issuance on 10 October 2026. FERR directions under Circular 26 apply to contracts entered into after the circular's issuance.
Who is affected by the new RBI forex derivative regulations?
All authorised dealers — primarily banks — and users of rupee-linked foreign exchange derivatives are affected, including corporates hedging current account exposures and those taking speculative positions in exchange-traded currency derivatives. Entities that previously relied on the $100 million unhedged window will be most significantly constrained by the new $5 million cap.
