Brief Overview:

Standalone primary dealers (SPDs) with AD Cat III licenses can now act as market makers in Non-deliverable Derivative Contracts (NDDCs) involving ₹.

Previously, this privilege was reserved for AD Cat I banks having an IFSC Banking Units.

Technical Details:

Under the revised RBI framework, NDDCs involving the ₹ can now be offered by SPDs to:

1) AD Category I Banks operating an IFSC Banking Unit,

2) SPDs holding an AD Category III license,

3) Resident entities for hedging their ₹ exposures,

4) Non-resident entities for purposes beyond hedging.

JC takeaway:

1) Broader Market Participation: SPDs can now engage in offshore ₹ derivative markets, previously restricted to select banks.

2) Enhanced Hedging Options: Residents and non-residents gain more regulated counterparties for ₹ risk management.

3) Reduced Offshore Dependence: Encourages more onshore activity, strengthening India’s financial market infrastructure.

For further details, please see:

Participation of Standalone Primary Dealers in Non-deliverable Rupee Derivative Markets

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