Informist, Tuesday, Oct 11, 2022
MUMBAI – The Reserve Bank of India has today issued prudential guidelines for standalone primary dealers to undertake foreign exchange activities as a part of their non-core activity.
Accordingly, standalone primary dealers’ capital charge for market risk in foreign exchange exposures shall be higher of the charges worked out by the standardised approach and the internal risk management framework-based value at risk model, the central bank said in a notification.
Further, under the standardised approach, standalone primary dealers should maintain a market risk capital charge of 15% for net open positions, limits or actual, whichever is higher, arising out of foreign exchange business with a risk weight of 100%, the central bank said.
Capital charge for market risk should be over and above the capital charge for credit risk of 15% as per earlier directions issued in 2016.
Further, the capital charge for market risk for all the permissible non-core activities, including foreign exchange activities, should not be more than 20% of the net owned fund of the standalone primary dealers as per last audited balance sheet.
“It may be noted that in case of failure of SPDs to meet the obligations of Primary Dealership (PD) business in the Government securities market or any other violations on regulations on conducting the PD business, the Reserve Bank reserves the right to impose restrictions or withdraw permission to undertake the foreign exchange business,” the central bank said.
Standalone primary dealers should also continue to comply with the provisions of Foreign Exchange Management Act and all rules, regulations and directions issued under that.
The RBI has also decided to permit standalone primary dealers to take up trading and self-clearing membership with Securities and Exchange Board of India approved stock exchanges or clearing corporations for undertaking transactions in equity and equity derivatives market and following related regulatory norms.
In a separate notification, the central bank also said that all financial transactions involving the rupee undertaken globally by related entities of the standalone primary dealers should be reported to Clearing Corp of India’s trade repository before 1200 IST of the business day following the date of transaction from Jan 1.
In August, RBI had proposed to allow standalone primary dealers to offer all foreign exchange market-making facilities and by allowing them to transact in the foreign currency settled overnight indexed swap market. This was done with a view to strengthen the role of standalone primary dealers as market makers, on a par with banks operating primary dealer business.
The wider market presence of standalone primary dealers would improve their ability to provide support to the primary issuance and secondary market activities in government securities, which remains the major focus activity of primary dealers, RBI had said. End
Reported by Bhakti Tambe
Edited by Aditya Sakorkar
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