The Securities and Exchange Board of India (SEBI) on 5 November 2026 revised the threshold for unhedged SEBI currency derivatives involving the Indian rupee, capping long or short positions without underlying exposure at a single USD 5 million equivalent notional. The change, issued under circular HO/(561)2026-MRD-POD2/I/25177/2026 and signed by Deputy General Manager Meetu Aggarwal, aligns exchange-traded currency markets with the Reserve Bank of India (RBI) A.P. (DIR Series) Circular No. 25 dated 10 October 2026.
The update amends Clause 5.3.3 of SEBI’s Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024. It sits in the same policy lane as recent RBI measures that tightened rupee-speculation and corporate hedging behaviour, bringing listed-derivative limits into step with the central bank’s forex risk framework.
What the USD 5 million single limit covers
Domestic clients and Foreign Portfolio Investors (FPIs) may take long or short positions in currency derivatives contracts involving INR without establishing underlying exposure, up to one combined limit of USD 5 million equivalent of notional value outstanding at any point. That ceiling applies across all currency pairs involving INR and is aggregated across all recognised stock exchanges.
FPIs must additionally ensure that short positions across all stock exchanges and all contracts in foreign-currency–INR (FCY-INR) pairs do not exceed USD 5 million. The single-limit design is meant to stop participants from stacking unhedged exposure by splitting books across venues.
Rules when positions exceed USD 5 million
FPIs that need long positions above USD 5 million in FCY-INR contracts must hold underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds. Domestic clients may go above the threshold only under the conditions in RBI’s Master Direction on Risk Management and Inter-Bank Dealings (dated 5 July 2016, as amended) and the 10 October 2026 A.P. (DIR Series) Circular No. 25, which also covers documentation for hedging contracted exposures and cancellation or rebooking of forex derivative contracts.
All other requirements in the 30 December 2024 SEBI Master Circular remain unchanged except where this circular modifies them. Banks have been watching RBI signals on forex books, including when lenders pulled back from forex buy-sell swaps into US Treasury bills after sensing official discomfort.
What exchanges and clearing corporations must do
Stock exchanges and clearing corporations must put systems in place for implementation, including consequential amendments to bye-laws, rules and regulations; notify stock brokers and clearing members and publish the circular on their websites; and communicate implementation status to SEBI. Depositories, Designated Depository Participants, custodians and FPIs through their DDPs are among the addressees.
The circular is issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992. It continues a busy November for market regulators after SEBI’s same-week steps on manager-led accredited investor certification and digital KYC for NRIs and OCIs.
Why the alignment matters
A single USD 5 million unhedged notional across INR pairs and exchanges gives FPIs, domestic clients, brokers and risk teams one clear reference point, and hard-wires RBI’s October forex-derivative thresholds into SEBI’s exchange rulebook. For treasury desks that already track cross-border forex cost and settlement frictions, position monitoring must treat the USD 5 million figure as a market-wide outstanding limit.
Key takeaways
- Unhedged long or short INR currency-derivative positions are capped at a single USD 5 million notional across all INR pairs and all recognised exchanges.
- FPI shorts in FCY-INR pairs cannot exceed USD 5 million; FPI longs above that need Indian equity or debt underlying, including mutual fund units.
- Domestic clients above USD 5 million must follow RBI’s Master Direction on Risk Management and Inter-Bank Dealings and the 10 October 2026 A.P. (DIR Series) Circular No. 25.
FAQ
Does the USD 5 million cap apply per exchange?
No. SEBI’s circular sets one combined limit across all recognised stock exchanges and all currency pairs involving INR.
Can FPIs take long currency positions above USD 5 million?
Yes, if they have underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds.
Who must implement the circular?
Stock exchanges and clearing corporations must update systems and bye-laws, inform members, publish the circular, and report implementation status to SEBI.
Featured image: SEBI Bhavan, Mumbai. Photo: Jimmy vikas via Wikimedia Commons (CC BY-SA 3.0)
