India’s Foreign Trade : January 2019
Merchandise exports and imports grew by 4% and 0.01% respectively
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RBI announces draft directions on facilities for hedging foreign exchange risk by Residents and Non-residents
The Reserve Bank of India has released a draft of the revised directions and regulations on facilities for hedging foreign exchange risk by Residents and Non-residents.
Background:
A review of the existing facilities for hedging of foreign exchange risk by non-residents and residents was announced in the Statement on Developmental and Regulatory Policies in February 2018 and August 2018 respectively.
Post review, the draft directions propose to, inter alia:
· Merge the facilities for residents and non-residents into a single unified facility for all users,
· Allow users having valid exposure to hedge the same using any available instrument,
· Introduce the facility to hedge anticipated exposure,
· Simplify the procedures for authorised dealers to offer foreign exchange derivatives.
Once finalised, the directions shall replace the existing directions in Part A - Section I and II of the Master Direction on Risk Management and Interbank Dealings.
Risk Management and Inter-bank Dealings: Hedging of foreign exchange risk by Residents and Non-Residents – Liberalisation
DRAFT CIRCULAR
Attention of Authorized Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 (Notification No. FEMA. 25/RB-2000 dated May 3, 2000), as amended from time to time and Master Directions on Risk Management and Inter-Bank Dealings dated July 5, 2016, as amended from time to time.
2. As announced in the Statement on Developmental and Regulatory Policies February, 2018 and August, 2018, the existing facilities for non-residents and residents to hedge their foreign exchange risk on account of transactions permitted under FEMA, 1999 have been revised. The revised directions are provided at Annex – I to this circular(enclosed). All previous operational guidelines, terms and conditions in this regard stand withdrawn.
3. Necessary amendments (Notification No. FEMA /2018-RB dated ____, 2018) to Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations, 2000 (Notification No. FEMA.25/RB-2000 dated May 3, 2000) (Regulations) have been notified in the Official Gazette vide G.S.R. No. ___ (E) dated ______, 2018, a copy of which is annexed to this circular. These regulations have been issued under clause (h) of sub-Section (2) of Section 47 of FEMA, 1999 (42 of 1999).
6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.
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Investment by Foreign Portfolio Investors (FPI) in Debt
Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 notified vide Notification No. FEMA.20(R)/2017-RB dated November 07, 2017, as amended from time to time and the relevant directions issued thereunder.
2. In terms of paragraph 4(f) (ii) of the AP (DIR Series) Circular No. 31 dated June 15, 2018 no FPI shall have an exposure of more than 20% of its corporate bond portfolio to a single corporate (including exposure to entities related to the corporate). As announced in paragraph 10 of the Statement on Developmental and Regulatory Policies of the Sixth Bi-monthly Monetary Policy Statement for 2018-19 dated February 07, 2019, in order to encourage a wider spectrum of investors to access the Indian corporate debt market, it has been decided to withdraw this provision with immediate effect.
3. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.
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RBI releases Draft Directions on Financial Benchmark Administrators
The Reserve Bank of India has released draft directions on Financial Benchmark Administrators.
Background:
Reserve Bank of India had, in its Statement on Developmental and Regulatory Policies, the Fourth Bi-monthly Monetary Policy Statement dated October 05, 2018, announced that it will introduce a regulatory framework for financial benchmarks, to improve the governance of the benchmark processes in markets regulated by the Reserve Bank. It was also announced in the Statement on Developmental and Regulatory Policies, in the Sixth Bi-monthly Monetary Policy Statement dated February 7, 2019 that the draft guidelines would be issued for public consultation. Accordingly, draft directions on Financial Benchmark Administrators are being issued for consultation.
These draft directions are based on the Report of the Committee on Financial Benchmarks set up by the Reserve Bank and are guided by the International best practices such as the Principles for Financial Benchmarks of International Organization of Securities Commissions (IOSCO) as well as the laws/ regulations put in place in other jurisdictions.
Financial Benchmark Administrators (Reserve Bank) Directions, 2019 – Draft
The Reserve Bank of India (hereinafter called ‘the Reserve Bank’) having considered it necessary in public interest and to regulate the financial system of the country to its advantage, in exercise of the powers conferred by section 45W of the Reserve Bank of India Act, 1934, (hereinafter called ‘the Act’) read with section 45U of the Act and of all the powers enabling it in this behalf, hereby issues the following Directions to Financial Benchmark Administrators. These directions are based on the practices recommended by the International Organization of Securities Commissions (IOSCO) in their report on Principles for Financial Benchmarks dated July 2013 and the Report of the Committee on financial benchmarks set up by the Reserve Bank on June 28, 2013.
Short Title and Commencement: These directions shall be called ‘Financial Benchmarks Administrators (Reserve Bank) Directions, 2019’ and shall come into force with effect from XXXX XX, 2019.
1. Scope: These directions shall apply to Financial Benchmark Administrators administering significant Benchmarks in the markets for Financial Instruments regulated by the Reserve Bank under Section 45 W of the Act. The directions shall not apply to any benchmarks issued by the Reserve Bank in furtherance of public policy objectives. These directions shall also not apply to internal benchmarks used by the clearing corporations recognised by the Reserve Bank of India or Securities Exchange Board of India for the purpose of internal risk management.
2. Definitions
I. ‘Administration’ includes all stages and processes involved in the production and dissemination of a benchmark.
II. ‘Benchmarks’ mean prices, rates, indices, values or a combination thereof related to financial instruments that are calculated periodically and used as a reference for pricing or valuation of financial instruments or any other financial contract.
III. ‘Calculating Agent’ means a legal entity with delegated responsibility for determining a benchmark in accordance with the methodology set out by the administrator.
IV. ‘Financial Benchmark Administrator’ (FBA) means an organisation or a legal person which controls the creation and operation of significant benchmark administration process, whether or not it owns the intellectual property relating to the benchmark.
V. ‘Financial instruments’ mean instruments referred to or specified under section 45W of the RBI Act.
VI. ‘Methodology’ in reference to benchmarks includes the process commencing from identification of source of inputs for calculation of benchmarks to the final act/step of calculation resulting in the arrival of the benchmarks.
VII. ‘Significant benchmarks’ means benchmarks notified by the Reserve Bank as significant benchmark under these Directions.
VIII. ‘Submitter’ shall mean any natural or legal person contributing input data for determination of a benchmark.
3. (i) No FBA shall administer a significant benchmark without obtaining prior authorisation of the Reserve Bank under these directions.
(ii) FBAs administering significant benchmarks on or before the commencement of these directions shall make an application for authorisation within a period of three months from the date of issue of these directions. Notwithstanding anything contained in Para 3 (i) herein above, an existing benchmark administrator administering significant benchmarks may continue to administer such benchmarks till the disposal of its application by the Reserve Bank granting or rejecting the letter of authorization.
(iii) The identification of a benchmark as significant benchmark shall be based on use, efficiency and relevance of the benchmark in domestic financial markets. A Benchmark Committee, having representation from the Reserve Bank, market bodies such as FIMMDA, FEDAI, PDAI, or any other entity which the Reserve Bank may deem fit, shall be constituted to identify significant benchmarks in the markets for financial instruments. The Reserve Bank shall notify, based on the recommendations of the Committee, a list of significant benchmarks.
(iv) Minimum eligibility criteria for FBAs:
4. FBAs shall adhere to the following directions in respect of their administration of significant benchmarks.
(i) Overall Responsibility of FBAs -
An FBA, in respect of the benchmarks administered by it, shall be responsible for
(ii) Significant Benchmarks: Formulation, Determination and Review -
(iii) Organizational and Process Controls: Oversight Committee -
(iv) Internal Control
The Reserve Bank may itself or through entities/persons that it may identify for the purpose, audit the Administrator; and the cost of the audit shall be borne by the Administrator.
(v) Outsourcing of benchmark related work
5. Complaint Management
6. Data Preservation
FBAs shall preserve all data in their possession in connection with the significant benchmarks they administer for a period of five years from the time they received or created the data. Without prejudice to the aforesaid time period, data related to any legal case shall be preserved for a period of two years from the closure of the case.
7. Exemption from provisions of these directions
The Reserve Bank, on being satisfied that it is necessary to do so, may exempt an FBA either generally or for such period as may be specified, from any or all of the provisions of these Directions, subject to such terms or conditions or limitations or restrictions as it may think fit and proper to impose, in the interest of public or financial system of the country.
8. Revocation of authorisation
The Reserve Bank may revoke the authorisation granted to an FBA based on adverse findings/ observations or material violation of any of the provisions of these directions.
9. Termination of administration
An FBA, who is holding a letter of authorisation to commence or carry administration of a significant benchmark, may terminate its operation with prior approval of the Reserve Bank with regard to timing and date of termination of administration, and shall comply with the terms and conditions stipulated by the Reserve Bank.
10. Benchmark Publication
All FBAs shall publish in public domain, the values of significant benchmarks, either on the day of its release or with a lag not exceeding 10 days.
11. Reporting
FBAs shall submit such data and reports to the Reserve Bank within such timeline and in such format as advised from time to time.
RBI seeks inputs on the draft directions on Financial Benchmark Administrators and therefore, request you to please provide your suggestions (if any) latest by 28th February 2019 at research@phdcci.in
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India’s Foreign Trade : January 2019 Merchandise exports and imports grew by 4% and 0.01% respectively Merchandise Trade ...
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