India relaxes rules on exchange-traded derivatives

The Reserve Bank of India (RBI) has ended many of its restrictions on foreign institutional investors, granting them permission to trade all exchange-traded derivatives products.

Previously, international investors could only trade index futures contracts, limited to their exposure in the underlying cash market, said Nagendra Parakh, chief general manager in charge of derivatives at India's capital market regulatory body, the Securities and Exchange Board of India.

The new ruling will allow investors to take positions in all exchange-traded derivatives, including index options, stock options and stock futures, subject to certain restrictions.

The RBI guidelines to custodial banks allow foreign investors to take up to 15% of the open interest or 1 billion rupees, whichever is higher, in index futures and options. Contracts on stock futures and options are now limited to 7.5% of the open interest or 500 million rupees - again depending on whichever is higher.

The gross open position across all derivatives contracts on a particular underlying cannot exceed either 1% of the free-float market capitalisation – in number of shares – or 5% of the open interest in the derivatives contracts on a particular underlying stock – by number of contracts.