RBI Allows Higher Position Limit For FPIs In Interest Rate Futures

The Reserve Bank of India has eased position limit in interest rate futures (IRFs) for foreign portfolio investors (FPIs). The banking regulator has allowed a limit of ₹5,000 crore for FPIs to go long in IRFs.

An Interest Rate Futures contract is an agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today. The underlying security for Interest Rate Futures is either a Government Bond or a Treasury Bill.

Currently, the FPI limit for Government Securities (G-Secs) is fungible between investments in G-Secs and investment in IRF.

FPI long positions in IRF are not allowed on G-Sec limit utilisation reaching 90 per cent.

“To facilitate further market development and to ensure that access of FPIs to IRFs remains uninterrupted, it has been decided to allocate FPIs a separate limit of ₹5,000 crore for long position in IRFs,” RBI said.

Accordingly, the aggregate long position of all FPIs, each of whom has a net long position in any IRF instrument, will be up to ₹5,000 crore, aggregated across all IRF instruments. This comes just days after the RBI allowed easier position limits for retail & HNI investors and foreign portfolio investor in India’s currency derivatives market.

RBI has allowed positions (long or short), without having to establish existence of underlying exposure, up to a single limit of $100 million equivalent across all currency pairs involving the rupee, put together, and combined across all exchanges.

Currently, domestic investors and FPIs are allowed to take a long (bought) or short (sold) position in USD-INR up to $15 million per exchange without having to establish existence of underlying exposure.

In addition, residents and FPIs are allowed to take long or short positions in EUR-INR, GBP-INR and JPY-INR pairs, all put together, up to $5 million equivalent per exchange without having to establish existence of any underlying exposure.