**Executive Summary**
This document from the Reserve Bank of India, dated as a draft, addresses the disclosure of transaction costs for foreign exchange transactions. It mandates Authorised Dealers to provide detailed transaction cost information to retail users for specific foreign exchange contracts. These instructions will take effect three months from the date of issuance.
**Key Points / Main Content**
* **Scope of Application:**
* Applies to Authorised Dealers offering foreign exchange contracts (involving INR or otherwise) to retail and non-retail users.
* Covers foreign exchange cash, tom, spot, derivative contracts, and foreign currency interest rate derivative contracts.
* **Disclosure Requirements for Derivatives:**
* When offering foreign exchange derivative or foreign currency interest rate derivative to a retail user, Authorised 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 Requirements for Cash, Tom and Spot Contracts:**
* When offering foreign exchange cash, tom, and spot contracts to a retail user, Authorised Dealers must provide details of the total transaction cost before entering into the contract.
* This includes all relevant costs and charges, such as sending and receiving fees (including those of any intermediaries), foreign exchange rate, and currency conversion charges.
* This information must also be included in the deal confirmation.
* **Effective Date:**
* The instructions are effective three months from the date of issuance.
* **Definitions:**
* 'Retail user' and 'Authorised Dealer' have the same meaning as assigned in the Master Direction.
* **Legal Basis:**
* The directions are issued under specific sections of the Reserve Bank of India Act, 1934 and the Foreign Exchange Management Act, 1999.
**Impact Analysis**
**Stakeholder: Authorised Dealers**
* **Impact:** Increased transparency requirements for foreign exchange transactions, particularly for retail users.
* **Action Required:** Update systems and processes to comply with the new disclosure requirements before offering relevant contracts, ensuring provision of total transaction cost information to retail users.
**Stakeholder: Retail Users**
* **Impact:** Enhanced transparency regarding transaction costs, enabling informed decision-making in foreign exchange transactions.
* **Action Required:** Review the provided transaction cost information before entering into foreign exchange transactions.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A referenced policy document that defines terms and procedures related to risk management and inter-bank dealings, which Authorised Dealers follow.
Authorised Dealers: Entities permitted to offer foreign exchange contracts, subject to the regulations outlined in the circular.
Reserve Bank of India Act, 1934: The legal basis for the directions contained in the circular, specifically under Section 45W.
Foreign Exchange Management Act, 1999: The Act under which the circular's directions are issued, specifically under Sections 10(4) and 11(1).
Reserve Bank of India: The issuer of the circular providing direction to financial entities.
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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