SEBI Revision of Limits for Currency Derivatives Contracts 2026: USD 5 Million Single Limit Without Underlying Exposure

SEBI has cut the amount of rupee currency-derivative exposure that can be taken without proving an underlying need — from USD 100 million to USD 5 million. The change is made in the circular titled "Revision of limits relating to requirement of underlying exposure for currency derivatives contracts" — SEBI Circular No. HO/(561)2026-MRD-POD2/I/25177/2026, dated 5 November 2026, signed by Meetu Aggarwal, Deputy General Manager. Under Clause 5.3.3.1, domestic clients and foreign portfolio investors (FPIs) may now take long or short positions in currency derivatives contracts involving the Indian rupee, without having to establish the existence of underlying exposure, only up to a single limit of USD 5 million equivalent of notional value, outstanding at any point — across all currency pairs involving INR put together, and combined across all recognised stock exchanges.

In plain business-owner language: if your business hedges rupee risk on the exchanges, you used to hold up to USD 100 million of such positions without showing any underlying import bill, export order, loan or investment. That free headroom is now USD 5 million — one-twentieth of what it was. Anything above it needs a real, documented underlying exposure.

What changed

The circular is issued further to Clauses 5.3.2.3 and 5.3.3 of the Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024, and is addressed to all stock exchanges, clearing corporations, depositories, designated depository participants (through depositories), custodians of securities and all FPIs (through their DDPs). It records that the Reserve Bank of India, vide A.P. (DIR Series) Circular No. 25 dated 10 October 2026 on "Risk Management and Inter-bank Dealings", revised the threshold limits for taking positions in foreign exchange derivatives involving INR without establishing underlying exposure, and prescribed additional requirements on cancellation and rebooking of contracts and documentation for hedging contracted exposures. A copy of that RBI circular is enclosed: the RBI circular governs the over-the-counter side through Authorised Dealers, and this SEBI circular aligns the exchange-traded side with the same USD 5 million threshold.

Clause 5.3.3.1 sets the new single limit of USD 5 million equivalent of notional value, outstanding at any point, for domestic clients and FPIs taking long or short INR currency derivative positions without establishing underlying exposure. The limit is expressly combined — across all INR currency pairs put together, and combined across all recognised stock exchanges. It is not USD 5 million per pair, and not USD 5 million per exchange; it is one bucket for everything. Clause 5.3.3.2 separately caps FPI shorts: FPIs shall ensure their short positions at all stock exchanges across all contracts in FCY-INR pairs do not exceed USD 5 million. Clauses 5.3.3.3, 5.3.3.6 and 5.3.3.7 are unchanged.

Clause 5.3.3.4 covers FPI longs above the limit: to take long positions in excess of USD 5 million in all FCY-INR contracts, FPIs must have an underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds. Clause 5.3.3.5 covers domestic clients above the limit: they may take positions in excess of USD 5 million in all FCY-INR contracts subject to the RBI Master Direction "Risk Management and Inter-Bank Dealings" dated 5 July 2016 (as amended) and RBI Circular No. 25 dated 10 October 2026. All other requirements of the Master Circular remain unchanged except as modified here. Issued under Section 11(1) of the SEBI Act, 1992, the circular directs exchanges and clearing corporations to put implementation systems in place, amend bye-laws, rules and regulations as needed, notify stock brokers and clearing members, disseminate the provisions on their websites, and communicate implementation status to SEBI.

Key changes at a glance

• The no-exposure limit falls twenty-fold, from USD 100 million to USD 5 million — same single-limit structure, one-twentieth of the old figure.
• One limit, not many: USD 5 million across all INR currency pairs put together and combined across all recognised stock exchanges. Splitting positions across pairs or exchanges creates no fresh headroom.
• FPI shorts are separately capped at USD 5 million across all stock exchanges and all contracts in FCY-INR pairs (Clause 5.3.3.2).
• FPI longs above USD 5 million need Indian securities as the underlying — Indian debt or equity securities, including units of equity or debt mutual funds (Clause 5.3.3.4).
• Domestic clients above USD 5 million fall under the RBI framework — the Master Direction of 5 July 2016 (as amended) and RBI Circular No. 25 dated 10 October 2026 (Clause 5.3.3.5). The enclosed RBI circular also bans cancellation and rebooking (except rollover) and requires an undertaking against double-hedging.

Old vs new: how the limits have moved since 2015

This is the third version of the limit in a decade. The 2018 circular (SEBI/HO/MRD/DP/CIR/P/2018/50 dated 15 March 2018) replaced a per-exchange regime under CIR/MRD/DP/04/2015 dated 8 April 2015, and was accompanied on the RBI side by A.P. (DIR Series) Circular No. 18 dated 26 February 2018.

The 2026 circular does not redesign the regime, it shrinks it. The single-limit architecture, the FPI short cap, and the requirement that large FPI longs be backed by Indian securities all carry over from 2018 — only the threshold has moved. Anyone whose compliance playbook was built around the 2018 numbers needs to re-run it against the new figure.

The enclosed RBI circular: rebooking ban and the undertaking

RBI A.P. (DIR Series) Circular No. 25 (RBI/2026-27/291), dated 10 October 2026 and signed by Dimple Bhandia, Chief General Manager, is enclosed with the SEBI circular, and its directions are part of the package market participants must now follow:

• No cancellation and rebooking. INR foreign exchange derivative contracts must not be cancelled and rebooked, except by way of rollover — on the same underlying exposure, with a maturity not exceeding 12 months. A contract cancelled after the directions came into force cannot simply be booked again afresh.
• The same USD 5 million threshold on the OTC side. The threshold for each facility covered — hedging contracted exposure across Authorised Dealers and exchange-traded INR positions across recognised stock exchanges — is henceforth USD 5 million equivalent of notional value, outstanding at any point of time.
• A new undertaking, and a two-year paper trail. When offering an INR foreign exchange derivative contract to hedge a contracted exposure, an Authorised Dealer must obtain and retain an undertaking from the user that the same underlying exposure has not been hedged with any other Authorised Dealer — or, where hedged in parts, details of the amounts already booked. The Authorised Dealer is responsible for compliance, including the existence of underlying exposure, and must retain the documents for not less than two years.

The RBI directions state that they "shall come into force with immediate effect". That immediate-effect language belongs to the RBI enclosure; the SEBI circular itself carries no separate effective-date clause. There is no transition window stated in either document, so positions and processes should be treated as governed by the new limits now.

Effective date — read this carefully

The SEBI circular dated 5 November 2026 does not contain a separate effective-date clause of its own. It amends Clause 5.3.3 of the Master Circular and directs stock exchanges and clearing corporations to implement the provisions. The enclosed RBI Circular No. 25 dated 10 October 2026, by contrast, expressly states that its directions "shall come into force with immediate effect". This article therefore records the effective date as 5 November 2026 — the date of the SEBI circular, on which the enclosed RBI directions were already in immediate effect — but readers should not treat that as a commencement date stated in the SEBI circular itself, because the SEBI circular states none. Watch for exchange-level circulars confirming the go-live of the new limits on each venue.

Who is affected

• Domestic clients — companies hedging import payments, export receivables or foreign-currency loans, and proprietary traders — lose most of their no-documentation headroom. Positions up to USD 5 million equivalent of notional value, outstanding at any point, can still be taken without establishing underlying exposure; anything above that must satisfy the RBI Master Direction conditions and Circular No. 25.
• Foreign portfolio investors — the FPI short cap in FCY-INR pairs falls from USD 100 million to USD 5 million across all exchanges and all contracts, and longs above USD 5 million now require underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds.
• Stock brokers and clearing members — the circular is expressly to be brought to their notice by the exchanges, and they are the first line of enforcement: limit monitoring must aggregate each client's positions across all INR pairs and all exchanges, because the USD 5 million limit is a single combined figure.
• Stock exchanges and clearing corporations — they must put systems in place, amend bye-laws, rules and regulations as needed, disseminate the provisions on their websites, and communicate implementation status to SEBI.
• Authorised Dealers, custodians and designated depository participants — the enclosed RBI directions make Authorised Dealers responsible for compliance, including the existence of underlying exposure, the undertaking against double-hedging, and retention of documents for not less than two years. DDPs and custodians are addressees of the SEBI circular and must pass the requirements to their FPI clients.

What to do next

For domestic clients:

1. Measure your combined outstanding notional now. Add up all open long and short INR currency derivative positions, across every INR pair and every recognised stock exchange, on a notional-value basis outstanding at any point, and compare the total with USD 5 million equivalent.
2. If you are above USD 5 million, assemble the underlying exposure file. Positions above the limit must satisfy the RBI Master Direction dated 5 July 2016 (as amended) and RBI Circular No. 25 dated 10 October 2026. Identify the contracted exposure each position hedges, keep the documents your Authorised Dealer will need, and give the undertaking that the same exposure has not been hedged with another Authorised Dealer.
3. Do not cancel and rebook. Under the enclosed RBI directions, an INR foreign exchange derivative contract that is cancelled cannot be rebooked, except by rollover on the same underlying exposure with a maturity not exceeding 12 months. A cancelled contract is gone, not parked.

For FPIs:

1. Check shorts first. Under Clause 5.3.3.2, your short positions in FCY-INR pairs across all stock exchanges and all contracts must not exceed USD 5 million.
2. Map longs above USD 5 million to Indian securities. Under Clause 5.3.3.4, long positions in excess of USD 5 million in all FCY-INR contracts require underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds. Confirm the securities exist, are identifiable, and are documented — and coordinate through your DDP and custodian, whose limit-monitoring must aggregate your positions across exchanges.

For brokers, clearing members, exchanges and clearing corporations:

1. Rebuild limit checks on a combined basis. Monitoring must aggregate notional value across all INR pairs and all recognised stock exchanges, outstanding at any point, against the single USD 5 million figure — and separately enforce the FPI short cap of USD 5 million across all FCY-INR contracts.
2. Update bye-laws, rules and regulations, notify stock brokers and clearing members, disseminate the provisions on the exchanges' websites, and communicate implementation status to SEBI. Watch for exchange-level implementation circulars; do not assume a grace period the SEBI circular does not state.

What the circular does not cover

The following points are marked NOT CHECKED because the SEBI circular (and the enclosed RBI circular) do not address them, and no official clarification has been traced:

• Whether existing positions above USD 5 million must be reduced by a particular date, and any transition treatment for them. NOT CHECKED — neither circular states a wind-down timetable or a grandfathering rule for positions already outstanding above the new limit.
• The date on which each stock exchange will go live with the new limits. NOT CHECKED — the SEBI circular directs exchanges and clearing corporations to implement the provisions and communicate implementation status to SEBI, but names no go-live date per exchange.
• Whether the Foreign Exchange Risk Reserve (FERR) in the RBI's companion circular applies to exchange-traded positions. NOT CHECKED — the FERR (a cash reserve equal to 20% of notional on certain contracts above USD 2 million) was introduced in RBI A.P. (DIR Series) Circular No. 26 dated 10 October 2026, which is not the circular enclosed with this SEBI circular. The FERR is covered in our separate article on the RBI's 10 October 2026 measures, linked below.
• Any penalty or consequence for breaching the new limits. NOT CHECKED — the circular sets the limits and directs implementation; it does not state the consequences of a breach, and this article does not speculate on them.

Do not advise on any of these points from this article alone; check the Master Circular, the RBI Master Direction, and any exchange-level circular before acting.

FAQs

What is the new SEBI limit for currency derivatives without underlying exposure?
USD 5 million equivalent of notional value, outstanding at any point. Under Clause 5.3.3.1, domestic clients and FPIs may take long or short INR currency derivative positions without establishing underlying exposure only up to that single limit, across all INR pairs put together and combined across all recognised stock exchanges.

What is SEBI Circular HO/(561)2026-MRD-POD2/I/25177/2026 dated 5 November 2026?
It is the circular titled "Revision of limits relating to requirement of underlying exposure for currency derivatives contracts", signed by Meetu Aggarwal, Deputy General Manager, which amends Clause 5.3.3 of the Master Circular dated 30 December 2024 and cuts the no-underlying-exposure limit from USD 100 million to USD 5 million, issued under Section 11(1) of the SEBI Act, 1992.

What must FPIs do to take long positions above USD 5 million in FCY-INR contracts?
Under Clause 5.3.3.4, they must have an underlying exposure in Indian debt or equity securities, including units of equity or debt mutual funds. The long position above USD 5 million must be backed by that exposure; it is not permitted on a no-exposure basis.

What must domestic clients do to take positions above USD 5 million?
Under Clause 5.3.3.5, they may take positions in excess of USD 5 million in all FCY-INR contracts subject to the RBI Master Direction dated 5 July 2016 (as amended) and RBI Circular No. 25 dated 10 October 2026 — including establishing the underlying exposure and giving the undertaking against double-hedging.

When does the SEBI currency derivatives circular take effect?
The SEBI circular dated 5 November 2026 contains no separate effective-date clause of its own; it directs stock exchanges and clearing corporations to implement the provisions. The enclosed RBI Circular No. 25 dated 10 October 2026 states its directions "shall come into force with immediate effect". This article records the effective date as 5 November 2026, the date of the SEBI circular.

How is this SEBI circular different from the RBI's 10 October 2026 circular?
They are two halves of the same cut. The RBI's Circular No. 25 reset the USD 5 million threshold for positions taken through Authorised Dealers and added the rebooking ban and the undertaking requirement; this SEBI circular applies the same USD 5 million single limit to exchange-traded currency derivatives under the stock-exchange Master Circular. Our article on the RBI measures, including the FERR in Circular No. 26, is linked under Related reading below.

Related reading

• RBI FERR 2026: 20% Reserve, USD 5M Limit, Rebooking Ban — our article on the RBI's 10 October 2026 circulars (Nos. 25 and 26), including the Foreign Exchange Risk Reserve

Sources

• Primary source: SEBI Circular No. HO/(561)2026-MRD-POD2/I/25177/2026 dated 5 November 2026 — sebi.gov.in (official circular page) and sebi.gov.in (official circular PDF)
• Enclosed RBI circular: RBI A.P. (DIR Series) Circular No. 25 (RBI/2026-27/291) dated 10 October 2026 — sebi.gov.in (RBI circular as enclosed)
• Prior position: SEBI Circular No. SEBI/HO/MRD/DP/CIR/P/2018/50 dated 15 March 2018 (USD 100 million single limit), superseding CIR/MRD/DP/04/2015 dated 8 April 2015; RBI companion A.P. (DIR Series) Circular No. 18 dated 26 February 2018 — cited by circular number.
• Framework amended: Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024, Clauses 5.3.2.3 and 5.3.3.

Last verified by team: 5 November 2026, against the official SEBI circular PDF on sebi.gov.in and the enclosed RBI circular. Every factual claim traces to those documents (and, for the prior position, to the 2018 and 2015 circulars as identified in the brief); points the circulars do not address are marked "NOT CHECKED" above.