In short: On 5 November 2026, SEBI issued a circular setting a single limit of USD 5 million for positions in rupee-linked currency derivatives that domestic clients and foreign portfolio investors (FPIs) can hold without showing an underlying exposure. The change follows an RBI circular of 10 October 2026. Beyond this limit, different conditions apply to FPIs and to domestic clients.
What has changed?
SEBI has modified the rules on unhedged positions in its Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024. The change brings SEBI's framework in line with the Reserve Bank of India's revised thresholds for foreign exchange derivatives involving the Indian rupee, set out in RBI's A.P. (DIR Series) Circular No. 25 dated 10 October 2026 on Risk Management and Inter-Bank Dealings.
Under the revised provision, domestic clients and FPIs may take long or short positions in currency derivatives contracts involving the rupee, without establishing underlying exposure, up to a single limit of USD 5 million equivalent of notional value. Three features define the limit:
- it applies to the position outstanding at any point of time;
- it covers all currency pairs involving the rupee, put together; and
- it is combined across all recognised stock exchanges.
According to Mint, this brings all rupee-related pairs under one aggregate limit instead of treating individual contracts separately. Mint also reports that RBI had earlier set the limit for such exposure at $100 million.
What is "underlying exposure"?
Underlying exposure means a genuine financial requirement or investment that a currency derivative position supports. For example, an importer with a dollar payment due in future, or an exporter expecting foreign currency receipts, may use derivatives to hedge exchange-rate risk. The USD 5 million limit lets market participants take positions without proving such an exposure.
Rules above USD 5 million
| Who | What the circular says |
|---|---|
| FPIs (short positions) | Short positions across all foreign currency-rupee contracts on all exchanges must not exceed USD 5 million. |
| FPIs (long positions) | To go beyond USD 5 million, an FPI must have underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds. |
What do exchanges have to do?
Stock exchanges and clearing corporations must put systems in place to implement the circular, including consequential amendments to their bye-laws, rules and regulations. They must also inform stock brokers and clearing members, publish the provisions on their websites, and report the status of implementation to SEBI.
All other requirements in the December 2024 master circular remain unchanged, unless modified by this circular or otherwise directed by SEBI.
Legal basis
SEBI issued the circular under Section 11(1) of the Securities and Exchange Board of India Act, 1992, which empowers it to protect investors in securities and to promote and regulate the securities market. The RBI's own circular also covers additional requirements on cancellation and rebooking of foreign exchange derivative contracts and on documentation for hedging contracted exposures; SEBI has enclosed it for reference and compliance.
Who is affected and what should you do?
Domestic traders, businesses that hedge currency risk and FPIs dealing in rupee currency derivatives are affected. If you hold or plan such positions, check your total notional exposure across all rupee pairs and exchanges against the USD 5 million limit. FPIs should confirm that short positions stay within the limit and that any larger long position is backed by qualifying Indian securities. Domestic clients planning larger positions should read the RBI conditions and speak to their broker or authorised dealer.
Frequently asked questions
Is the USD 5 million limit per contract or per exchange?
No. It is a single limit on outstanding notional value across all rupee currency pairs put together and across all recognised stock exchanges combined.
Can an FPI take long positions above USD 5 million?
Yes, but only if it has underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds. Its short positions, however, must not exceed USD 5 million.
Sources
- SEBI: Revision of limits relating to requirement of underlying exposure for currency derivatives contracts
- Mint: Sebi tightens rupee derivative norms to align with RBI's $5 million threshold
- ET Markets: Sebi revises currency derivative norms for domestic investors, FPIs; allows to trade up to USD 5 mn