**Executive Summary**
This document, issued by the Reserve Bank of India's Financial Markets Regulation Department, pertains to the disclosure of transaction costs for foreign exchange transactions. It references the Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016. The instructions within this circular take effect three months from the date of issuance.
**Key Points / Main Content**
* **Scope of Foreign Exchange Contracts:**
* The circular applies to foreign exchange contracts involving INR or otherwise, offered to both retail and non-retail users.
* These contracts include: foreign exchange cash, tom, spot, derivative contracts, and foreign currency interest rate derivative contracts.
* **Disclosure Requirements for Derivatives (Retail Users):**
* Authorised Dealers must provide the mid-market mark/bid and ask price of derivatives to retail users before entering the contract.
* This pricing information must be included in the deal confirmation/term sheet.
* **Disclosure Requirements for Cash, Tom, and Spot Contracts (Retail Users):**
* Authorised Dealers must provide retail users with details of the total transaction cost before entering into foreign exchange cash, tom, and spot contracts.
* This cost disclosure should include all relevant costs and charges such as sending and receiving fees (including intermediaries), exchange rate, and currency conversion charges.
* The total transaction cost must be included in the deal confirmation.
* **Definitions:**
* The terms "retail user" and "Authorised Dealer" have the same meaning as assigned in the Master Direction.
**Impact Analysis**
**Authorised Dealers**
* **Impact:** They are subject to new disclosure requirements for foreign exchange transactions with retail users.
* **Action Required:** Authorised Dealers must update their systems and processes to comply with the disclosure requirements for derivative, cash, tom, and spot contracts and ensure compliance by the effective date (three months from issuance).
**Retail Users**
* **Impact:** They will receive more transparent information regarding the transaction costs associated with foreign exchange transactions.
* **Action Required:** No direct action is required. They should review the provided transaction cost details before entering into foreign exchange contracts.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A master direction issued by RBI, providing guidelines for risk management and inter-bank dealings, which is referenced and amended in this circular regarding disclosure of transaction costs.
Reserve Bank of India: The issuer of the circular and regulator of financial markets.
Foreign Exchange Management Act, 1999 (42 of 1999): The Act under which the directions in the circular are issued.
Reserve Bank of India Act, 1934: The Act under which the directions in the circular are issued.
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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