The Securities and Exchange Board of India on Thursday revised currency derivatives exposure limits to match Reserve Bank of India norms. Investors can now hold up to $5 million in unhedged positions across all exchanges. Those exceeding this limit must show underlying exposure in Indian debt or equity securities to continue.

Market regulator Securities and Exchange Board of India (SEBI) on Thursday revised the limits for taking positions in currency derivatives without establishing underlying exposure, aligning the exchange-traded currency derivatives framework with the Reserve Bank of India's (RBI) revised norms.

Under the revised framework, domestic investors and foreign portfolio investors (FPIs) can take long or short positions of up to $5 million in currency derivatives involving the Indian rupee without having to demonstrate an underlying foreign exchange exposure.

The $5 million limit will apply to the combined outstanding notional value of positions across all currency pairs involving the rupee and across all recognised stock exchanges. This means investors cannot separately avail of the $5 million limit for different currency pairs or exchanges.

The revision follows the RBI's October 10 decision to reduce the threshold for undertaking foreign exchange derivative transactions without establishing underlying exposure to $5 million.

SEBI has specified separate conditions for FPIs taking positions beyond the prescribed limit.

FPIs will have to ensure that their aggregate short positions across all stock exchanges in foreign currency-rupee pairs do not exceed $5 million.

For taking long positions exceeding $5 million, FPIs will have to establish underlying exposure in Indian debt or equity securities, including units of equity and debt mutual funds.

Domestic investors can take positions exceeding $5 million, are required to provide supporting documentation. They must also give an undertaking that the same underlying exposure has not been hedged through another authorised dealer. If the exposure is hedged through multiple dealers, the amounts booked with each dealer must be disclosed.

The RBI has also tightened rules on cancellation and rebooking of foreign exchange derivative contracts. Contracts cancelled after October 10, 2026, cannot be rebooked, although rollover of contracts on maturity is permitted subject to applicable conditions.