MUMBAI, November 27, 2025 – Indian regulators are reportedly in discussions to reassess strict rules governing exchange-traded currency derivatives, after appeals from exchanges and traders. The move comes as trading volumes in India’s currency derivatives market have declined sharply, with activity increasingly moving to offshore platforms such as Singapore’s SGX.

Background: RBI Restrictions and Market Impact

In 2024, the Reserve Bank of India (RBI) reiterated a rule requiring that currency derivative positions on exchanges be backed by underlying exposures. Although the rule existed previously, it was not strictly enforced, allowing speculative trading to surge.

After the advisory, trading in these contracts—used to hedge foreign exchange risk and speculate on currency movements—plummeted in India while offshore markets saw rising volumes.

• NSE turnover: Dropped to $766.84 million daily in October 2025 from $3.7 billion in March 2024
• SGX dollar/rupee futures turnover: Rose to $3.2 billion from $1.8 billion in March 2024

The shift highlights the risk of capital flight from domestic platforms and underscores the RBI’s challenge of balancing risk management with market development.

Potential Rule Tweaks

Although a formal review has not been initiated, sources indicate that top officials at the RBI and the Securities and Exchange Board of India (SEBI) are discussing changes that would:

• Reopen the domestic market to individual and proprietary traders
• Maintain appropriate safeguards to prevent excessive speculation
• Possibly tighten position limits, addressing concerns that large speculative positions could destabilize the market

Before April 2024, investors could hold up to $100 million in positions without showing evidence of underlying exposure, a limit that allowed broad speculation on the rupee. Traders have suggested reducing these limits while still permitting a level of speculative activity that improves price discovery.

Market Perspectives

One source noted that speculation can have positive effects, saying:

“The earlier stance was to frown upon speculative activity. This view is changing as speculation improves price discovery.”

However, concerns remain that high speculative activity could introduce risks. Another source added that, while speculation was not causing major domestic currency management issues, it was still a factor for the RBI to consider.

Implications for India’s Currency Derivatives Market

Relaxing or tweaking the rules could revitalize India’s domestic currency derivatives market, allowing investors to trade more actively without shifting business offshore. At the same time, regulatory safeguards such as position limits and exposure requirements would ensure the market remains stable and transparent.

The final decision on any changes will rest with the RBI, which continues to balance market development with prudent risk management in the foreign exchange segment.