**Executive Summary**
This document, issued by the Reserve Bank of India, addresses the disclosure of transaction costs for certain foreign exchange transactions. It mandates Authorised Dealers to provide detailed cost information to retail users. The instructions take effect three months from the date of issuance.
**Key Points / Main Content**
* **Scope:** The circular applies to Authorised Dealers offering the following foreign exchange contracts involving INR or otherwise to both retail and non-retail users:
* Foreign exchange cash
* Foreign exchange tom
* Foreign exchange spot
* Foreign exchange derivative contracts
* Foreign currency interest rate derivative contracts.
* **Disclosure for Derivatives:**
* When offering foreign exchange derivative/foreign currency interest rate derivative to a retail user, Authorized Dealers must provide the mid-market mark/bid and ask price before entering the contract.
* This information must also be included in the deal confirmation/term sheet.
* **Disclosure for Cash, Tom, and Spot:**
* When offering foreign exchange cash, foreign exchange tom, and foreign exchange spot contracts to a retail user, Authorized Dealers must provide details of the total transaction cost (all relevant costs and charges, including sending/receiving fees, intermediary fees, exchange rate, and conversion charges) before the contract.
* This information must be included in the deal confirmation.
* **Definitions:** The terms "retail user" and "Authorised Dealer" have the same meaning as defined in the Master Direction.
* **Effective Date:** The instructions become effective three months from the date of issuance.
* **Legal Basis:** The circular is issued under specific sections of the Reserve Bank of India Act, 1934, and the Foreign Exchange Management Act, 1999.
**Impact Analysis**
**Authorised Dealers**
* **Impact:**
* Requires changes to disclosure practices for foreign exchange transactions.
* Increased transparency in pricing.
* **Action Required:**
* Update systems and procedures to comply with the new disclosure requirements.
* Ensure compliance three months from the date of issuance.
**Retail Users**
* **Impact:**
* Increased transparency regarding transaction costs.
* Better-informed decision-making when engaging in foreign exchange transactions.
* **Action Required:**
* Review transaction cost information provided by Authorised Dealers.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A direction issued by the Reserve Bank of India related to risk management and inter-bank dealings, which this circular references.
Reserve Bank of India: The central bank of India, responsible for regulating the financial system and the issuer of this circular.
Foreign Exchange Management Act, 1999: Indian legislation governing foreign exchange transactions, cited as the legal basis for the circular.
Reserve Bank of India Act, 1934: The act establishing the Reserve Bank of India and defining its powers, cited as the legal basis for the circular.
RESERVE BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
9TH FLOOR, CENTRAL OFFICE, FORT
MUMBAI 400 001
To,
All Authorised Dealers
Madam/Sir,
Disclosure of transaction cost for foreign exchange transactions - Draft
A reference is invited to the Master Direction – Risk Management and Inter-Bank
Dealings dated July 05, 2016, as amended from time to time (hereinafter referred as
‘Master Direction’), in terms of which Authorised Dealers have been permitted to offer the
following foreign exchange contracts, involving INR or otherwise, to users (both retail and
non-retail):
a. foreign exchange cash;
b. foreign exchange tom;
c. foreign exchange spot;
d. foreign exchange derivative contracts; and
e. foreign currency interest rate derivative contracts.
2. In terms of the aforesaid Master Direction, while offering foreign exchange derivative /
foreign currency interest rate derivative to a retail user, an Authorised Dealer shall provide
the mid-market mark / bid and ask price of the derivative before entering into the contract
and the same must also be included in the deal confirmation / term sheet.
3. Further to this, on a review, it has been decided that while offering foreign exchange
cash, foreign exchange tom and foreign exchange spot contracts to a retail user,
Authorised Dealers shall provide to the user, details of the total transaction cost (showing
all relevant costs and charges viz., sending and receiving fees including those of any
intermediaries, foreign exchange rate and currency conversion charges), before entering
into the contract and also include the same in the deal confirmation.4. These instructions shall be applicable with effect from three months from the date of
issuance of these instructions.
5. For the purpose of this circular, ‘retail user’ and ‘Authorised Dealer’ shall have the
same meaning as assigned in the Master Direction.
6. The directions contained in this circular have been issued under Section 45W of the
Reserve Bank of India Act, 1934 and Sections 10(4) and 11(1) of the Foreign Exchange
Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals,
if any, required under any other law.
Yours faithfully,
(Dimple Bhandia)
Chief General Manager
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