Note on New 100MM contracted Trade type

 Reference: RBI/2023-24/108 A. P. (DIR Series) Circular No. 13 dated January 5, 2024(effective April 5, 2024)

Recently RBI in the above-mentioned circular has introduced new trade type “100MM contracted” to enable users to book hedges upto the limit of USD 100 Million or equivalent without establishing any underlying exposure.

Relevant extract of circular is as follows:

Proviso to 2.4(i) of Section I of Annex I:

“Provided that Authorised Dealers shall permit users to take position up to USD 100 million equivalent of notional value (outstanding at any point of time), across all Authorised Dealers, for hedging contracted exposure without the requirement to establish the existence of underlying exposure. Authorised Dealers shall inform users that while they are not required to establish the existence of underlying exposure, they must ensure the existence of a valid underlying contracted exposure which has not been hedged using any other derivative contract and should be in a position to establish the same, if required.”

The following are the points informed by Bank to us w.r.t. the above-mentioned Trade Type:

1.      Gains/Losses on cancellation/roll-over of hedges taken under this trade type will be passed on to the user immediately unlike under anticipated exposure where gains will be passed on settlement of new hedge taken on roll-over.

2.      No need to submit any documents to establish underlying exposure under this trade type.