SEBI Cuts INR Currency Derivatives Limit Without Underlying Exposure to USD 5 Million for Clients and FPIs
SEBI’s circular of 5 November 2026 cuts the amount of rupee currency derivatives that domestic clients and foreign portfolio investors may hold without showing underlying exposure from USD 100 million to USD 5 million. It follows RBI’s circular of 10 October 2026. SEBI states no separate effective date; exchanges are directed to put systems in place.
Take Kaveri Textiles Pvt Ltd, an Indian exporter. It has no import bills or other foreign-currency contract to match its derivatives, and it holds these positions on exchanges, counted in US dollar equivalent of notional value. How much room does it have now?
| Step | Position (USD equivalent) | Running total |
|---|---|---|
| USD-INR futures, exchange 1 | 2.4 million | 2.4 million |
| EUR-INR futures, exchange 2 | 1.6 million | 4.0 million |
| GBP-INR options, exchange 1 | 0.7 million | 4.7 million |
| Room left under the new limit | 5.0 − 4.7 | 0.3 million |
| Kaveri wants to add USD-INR futures | 1.0 million | 5.7 million |
| Part above the limit | 5.7 − 5.0 | 0.7 million |
Under the earlier clause 5.7 million sat far below USD 100 million (100 − 5.7 = 94.3 million of room). Now the extra 0.7 million falls under clause 5.3.3.5, which sends domestic clients to RBI’s conditions for positions above the limit. Our reading: Kaveri would need to meet those conditions, including evidence of an underlying exposure, before it takes that part.
What do these terms mean?
Currency derivative
A futures or options contract whose value moves with an exchange rate, such as USD-INR. Here, contracts traded on recognised stock exchanges.
Underlying exposure
A real exposure that the derivative hedges. For an FPI, the circular names holdings in Indian debt or equity securities, including units of equity or debt mutual funds. For domestic clients, RBI speaks of hedging a contracted exposure.
FPI
Foreign Portfolio Investor: an overseas investor in Indian securities.
Notional value
The face value of the contract, not the margin paid, outstanding at any point in time.
What is the parent framework?
Two separate tests apply to rupee currency derivatives on exchanges. The first is a position limit. Clause 5.3.2.3 of SEBI’s Master Circular for Stock Exchanges and Clearing Corporations (30 December 2024) caps each client’s gross open position per exchange, in USD-INR for example at 6% of total open interest or USD 20 million, whichever is higher. The new circular refers to this clause but does not change it.
The second test is the underlying-exposure limit in clause 5.3.3. Up to a limit, a participant may trade without showing any exposure behind the position. Above it, the position must be backed by one. That clause carried a single limit of USD 100 million, across all rupee pairs and all exchanges, for domestic clients and FPIs together, and it also required FPIs to keep short positions within USD 100 million. RBI sets the foreign-exchange side of this under FEMA through its Master Direction on Risk Management and Inter-Bank Dealings (5 July 2016), which also covers Authorised Dealers, the banks that offer these contracts.
What changed, and why?
The change started at RBI. In A.P. (DIR Series) Circular No. 25 of 10 October 2026, issued “in view of evolving market conditions”, RBI lowered two thresholds to USD 5 million equivalent: the position a bank customer may take against a contracted exposure without establishing underlying, and the single exchange limit in the Master Direction. It also barred rebooking of cancelled contracts and added a no-double-hedging undertaking. These Directions came into force with immediate effect. SEBI’s circular then aligns the exchange rulebook. It states that RBI revised the thresholds, and it replaces the numbers in clause 5.3.3.
BEFORE (Master Circular, 30 Dec 2024)
Single limit of USD 100 million across all rupee pairs and all stock exchanges. FPI shorts within USD 100 million. FPI longs above USD 100 million need Indian debt or equity underlying. Domestic clients above it follow RBI circulars of 2014 and 2015.
NOW (SEBI circular, 5 Nov 2026)
Single limit of USD 5 million across all rupee pairs and all recognised stock exchanges. FPI shorts within USD 5 million. FPI longs above USD 5 million need the same underlying. Domestic clients above it follow RBI’s Master Direction and Circular No. 25.
Clauses 5.3.3.3, 5.3.3.6 and 5.3.3.7 appear in the circular only as dots. Paragraph 4 says all other requirements of the Master Circular remain unchanged, so our reading is that those three stay as before.
When does it apply?
The circular does not state a separate date; exchanges and clearing corporations are directed to put systems in place, so the exact start date for exchange-traded positions is to be confirmed. RBI’s own Circular No. 25 applies to Authorised Dealers with immediate effect from 10 October 2026. Exchanges and clearing corporations are to put systems in place, amend their bye-laws, tell brokers and report implementation status to SEBI (paragraph 5).
Who is affected, and what should they check?
Corporates and other domestic clients
Add up open positions across all pairs and exchanges. Above USD 5 million, RBI’s conditions apply; keep exposure documents on file.
FPIs and their custodians
Keep shorts within USD 5 million. Back longs above it with Indian debt or equity holdings.
Brokers, clearing members, exchanges
Expect the exchange circular. Client positions already between USD 5 million and USD 100 million: treatment to be confirmed.
Legal basis
- Instrument
- SEBI circular HO/(561)2026-MRD-POD2/I/25177/2026, 5 November 2026, Revision of limits relating to requirement of underlying exposure for currency derivatives contracts
- Clause modified
- 5.3.3 of the Master Circular for Stock Exchanges and Clearing Corporations, 30 December 2024 (SEBI/HO/MRD-PoD2/CIR/P/2024/00181), read with clause 5.3.2.3
- Power used
- Section 11(1), Securities and Exchange Board of India Act, 1992
- RBI basis
- A.P. (DIR Series) Circular No. 25, 10 October 2026, under sections 10(4) and 11(1) of FEMA, 1999 and section 45W of the RBI Act, 1934
Key facts
| Authority | Securities and Exchange Board of India (SEBI) |
|---|---|
| Instrument | Circular, Revision of limits relating to requirement of underlying exposure for currency derivatives contracts |
| Reference | HO/(561)2026-MRD-POD2/I/25177/2026 |
| Issue date | 5 November 2026 |
| Effective date | No separate date stated; exchanges are to put systems in place (to confirm start date) |
| Change | Clause 5.3.3 limit: USD 100 million to USD 5 million equivalent of notional value |
| Covers | Domestic clients and FPIs; all rupee pairs combined; all recognised stock exchanges |
| Last verified | 6 November 2026, against the SEBI circular page and PDF, the SEBI Master Circular chapter 5 PDF and the RBI circular page |
Frequently asked questions
Has SEBI raised or lowered the limit?
Lowered. Clause 5.3.3.1 of the 30 December 2024 Master Circular allowed USD 100 million. The text in the 5 November 2026 circular says USD 5 million.
Does the USD 5 million apply per exchange?
No. The clause says a single limit across all currency pairs involving INR, put together, and combined across all recognised stock exchanges.
What if an FPI wants longs above USD 5 million?
Clause 5.3.3.4 requires an underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds.
From when does the new limit apply to exchange-traded positions?
The circular does not state a separate date; exchanges and clearing corporations are directed to put systems in place, so the exact start date for exchange-traded positions is to be confirmed. RBI’s Circular No. 25 applied from 10 October 2026.
Sources (official)
- SEBI circular HO/(561)2026-MRD-POD2/I/25177/2026, Revision of limits relating to requirement of underlying exposure for currency derivatives contracts, 5 November 2026 https://www.sebi.gov.in/legal/circulars/nov-2026/revision-of-limits-relating-to-requirement-of-underlying-exposure-for-currency-derivatives-contracts_105614.html
- SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 December 2024, Chapter 5 Exchange Traded Derivatives (clauses 5.3.2.3 and 5.3.3) https://www.sebi.gov.in/sebi_data/commondocs/dec-2024/RE_Chapter%205%20-%20Exchange%20Traded%20Derivatives%20FINAL_1_p.pdf
- RBI A.P. (DIR Series) Circular No. 25, Risk Management and Inter-Bank Dealings, 10 October 2026 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13737&Mode=0
- SEBI
- Capital Market Regulations
- Currency derivatives
- FPI
- RBI
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