**Executive Summary**
This document from the Reserve Bank of India, Financial Markets Regulation Department, addresses the disclosure of transaction costs for foreign exchange transactions. It amends the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016, and mandates that Authorised Dealers provide detailed cost information to retail users for various foreign exchange contracts. The instructions become effective three months from the date of issuance.
**Key Points / Main Content**
* **Applicability:** This circular pertains to foreign exchange contracts involving INR or otherwise, offered by Authorised Dealers to both retail and non-retail users.
* **Affected Contracts:** The requirements apply to:
* Foreign exchange cash
* Foreign exchange tom
* Foreign exchange spot
* Foreign exchange derivative contracts
* Foreign currency interest rate derivative contracts
* **Disclosure Requirements for Derivatives:** When offering foreign exchange derivative / foreign currency interest rate derivative to a retail user, Authorised Dealers must:
* Provide the mid-market mark/bid and ask price before entering into the contract.
* Include the above in the deal confirmation/term sheet.
* **Disclosure Requirements for Cash and Spot Transactions:** When offering foreign exchange cash, foreign exchange tom and foreign exchange spot contracts to a retail user, Authorised Dealers must:
* Provide details of the total transaction cost (including sending and receiving fees and exchange rate/currency conversion charges) before the contract.
* Include the total transaction cost in the deal confirmation.
* **Effective Date:** The new instructions take effect three months from the date of issuance.
* **Definitions:** "Retail user" and "Authorised Dealer" have the same meanings as in the Master Direction.
* **Legal Basis:** The directions are 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.
**Impact Analysis**
**Authorised Dealers**
* **Impact**
* Requires modification of systems and processes to accurately calculate and disclose all relevant transaction costs before entering into relevant foreign exchange contracts with retail users.
* Increased transparency in pricing for retail users.
* **Action Required**
* Update systems to provide detailed transaction cost information for foreign exchange cash, tom, spot and derivative contracts.
* Ensure that deal confirmations and term sheets include all required cost details.
* Comply with the instructions within three months of the issuance date.
**Retail Users**
* **Impact**
* Enhanced transparency in transaction costs associated with foreign exchange dealings.
* Better-informed decision-making due to clearer cost breakdowns.
* **Action Required**
* Review transaction details to understand all costs involved in foreign exchange transactions.
* Ensure deal confirmations match pre-contractual disclosures for cash, tom, and spot transactions.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A reference document that defines the terms and conditions for foreign exchange transactions, which this circular amends or clarifies.
Reserve Bank of India: The regulator issuing the circular regarding the disclosure of transaction costs for foreign exchange transactions.
Foreign Exchange Management Act, 1999: The Act under which the directions in this circular are issued; specifically sections 10(4) and 11(1).
Reserve Bank of India Act, 1934: The Act under which the directions in this circular are issued; specifically section 45W.
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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