Mumbai: India’s financial watchdogs are reportedly holding discussions to potentially roll back some of the stringent restrictions imposed on exchange-traded currency derivatives a move that could revive interest in a market that has seen activity collapse over the past 18 months. Sources familiar with the matter told Reuters that regulators believe easing the curbs might help curb the exodus of trading volume to offshore exchanges and restore liquidity to domestic markets.
The sharp downturn began when regulations introduced in 2024 mandated that any rupee derivatives contract must be backed by actual foreign-exchange exposure, allowing only genuine hedging, and effectively barring speculative trades. As a result, currency futures and options trading on domestic exchanges plunged dramatically. Data for 2024–25 show a steep decline in premiums and settlements with the total settled value dropping by roughly 60% compared with the previous year.
At the same time, a significant portion of trading volume appears to have shifted offshore. Market participants reportedly moved their hedging and speculative flows to foreign platforms, seeking greater flexibility than what the domestic restrictions permitted. Regulators worry that continued outflows may undermine the rupee’s liquidity and make onshore currency markets less robust especially at times of external shock or currency volatility.
According to sources, the proposed revisions under consideration would re-open the market to a broader class of participants, including proprietary and institutional traders, though likely under stricter oversight and possibly with revised exposure and position-limit norms. The aim is to balance the need for risk control and currency stability with the market’s demand for liquidity and efficient price discovery.
Observers note that such a move could restore activity in the domestic rupee-derivatives market which has historically offered hedging tools for importers, exporters, and portfolio investors while reducing reliance on offshore venues whose operations escape domestic regulation. But analysts also flag risks: loosening the curbs could re-expose the rupee to speculative swings and demand renewed vigilance from regulators and market participants alike.
As of now, no formal announcement has been made. But the very fact that such discussions are underway signals a potential shift in India’s approach toward balancing financial stability, market liquidity, and flexibility in the days ahead.