The deadline to enact new regulations for exchange-traded foreign exchange derivatives has been postponed by the RBI to May 3. The revised guidelines were intended to take effect tomorrow.
The majority of the market's most prominent participants are anticipated to be forced out by the regulations, drying off volumes that above $5 billion daily.
Brokerages began requesting that clients terminate contracts after exchanges reiterated the central bank's decree requiring participants to have genuine exposure to foreign exchange.
In actuality, Zerodha had requested that traders terminate open positions by April 5th in order to comply with RBI regulations.
This eliminates the individual traders and speculators who make up a significant amount of the volume.
"A minimum of 70% or greater of the volume will disappear – half of the market consists of arbitragers," stated Sajal Gupta, Nuvama Institutional's executive director and head of currency and commodities. "Those traders will have to square off their existing positions and won't take any new ones."
The regulation is in line with the Reserve Bank of India's more comprehensive foreign exchange management strategy, which has seen the central bank reduce rupee fluctuations in the lead-up to the country's bond markets being included in international indexes starting in June. The rupee has seen very low volatility when compared to other developing market currencies worldwide.
