**Executive Summary**
This document is a draft circular from the Reserve Bank of India (RBI) regarding the disclosure of transaction costs for foreign exchange transactions. It amends the Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016. The instructions in this circular are effective three months from the date of issuance.
**Key Points / Main Content**
* **Scope:**
* Applies to foreign exchange contracts involving INR or otherwise, offered to both retail and non-retail users.
* Covers foreign exchange cash, tom, spot, derivative contracts, and foreign currency interest rate derivative contracts.
* **Disclosure Requirements for Retail Users:**
* For foreign exchange derivative / foreign currency interest rate derivative contracts, Authorised Dealers must provide the mid-market mark/bid and ask price before entering the contract.
* This price must be included in the deal confirmation/term sheet.
* For foreign exchange cash, tom, and spot contracts, Authorised Dealers must disclose the total transaction cost (including all relevant costs and charges such as sending/receiving fees, intermediary fees, exchange rate, and currency conversion charges) before entering the contract.
* This total cost must also be included in the deal confirmation.
* **Definitions:**
* 'Retail user' and 'Authorised Dealer' have the same meaning as defined in the Master Direction.
* **Authority:**
* 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.
* **Effective Date:**
* The instructions will be applicable with effect from three months from the date of issuance of these instructions.
**Impact Analysis**
**Authorised Dealers**
* **Impact:** Increased transparency requirements for foreign exchange transactions offered to retail users. They will be required to disclose all transaction costs.
* **Action Required:** Update systems and procedures to provide the required disclosures before entering into foreign exchange contracts with retail users.
**Retail Users**
* **Impact:** Greater transparency regarding the costs associated with foreign exchange transactions, enabling better-informed decisions.
* **Action Required:** Review disclosed transaction costs before entering into foreign exchange contracts.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings: A Master Direction issued by the Reserve Bank of India that defines guidelines for risk management and inter-bank dealings, which this circular amends.
Authorised Dealers: Entities permitted to offer foreign exchange contracts, impacted by the disclosure requirements outlined in this circular.
Reserve Bank of India Act, 1934: The legal act under which the directions in this circular are issued, specifically referencing Section 45W.
Foreign Exchange Management Act, 1999: The legal act under which the directions in this circular are issued, specifically referencing Sections 10(4) and 11(1).
Mumbai: Location of the Reserve Bank of India's Financial Markets Regulation Department.
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
2