**Executive Summary**
This document from the Reserve Bank of India addresses the disclosure of transaction costs for foreign exchange transactions by Authorised Dealers. It mandates increased transparency in cost disclosure for retail users, particularly regarding foreign exchange cash, tom, and spot contracts. The instructions become effective three months from the date of issuance.
**Key Points / Main Content**
* **Scope:** The document applies to Authorised Dealers offering foreign exchange contracts to users, specifically:
* Foreign exchange cash
* Foreign exchange tom
* Foreign exchange spot
* Foreign exchange derivative contracts
* Foreign currency interest rate derivative contracts
* **Disclosure Requirements for Derivative Contracts (existing):**
* 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 the contract.
* This information must also be included in the deal confirmation/term sheet.
* **Disclosure Requirements for Cash, Tom, and Spot Contracts (new):**
* When offering foreign exchange cash, tom, and spot contracts to retail users, Authorised Dealers must provide details of the total transaction cost *before* entering the contract.
* This includes all relevant costs and charges (sending and receiving fees, intermediary fees, exchange rate, and currency conversion charges).
* These details must also be included in the deal confirmation.
* **Effective Date:** The instructions are effective three months from the date of issuance.
* **Definitions:** The terms 'retail user' and 'Authorised Dealer' have the same meaning as assigned 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:** Authorised Dealers will need to update their systems and procedures to ensure full disclosure of transaction costs for foreign exchange cash, tom, and spot contracts offered to retail users.
* **Action Required:** Implement systems to calculate and disclose all transaction costs (including fees) *before* the contract is entered, and include this information in deal confirmations.
**Retail Users**
* **Impact:** Retail users will benefit from increased transparency regarding the total costs associated with foreign exchange transactions, enabling them to make more informed decisions.
* **Action Required:** Review disclosures provided by Authorised Dealers to understand the total cost of foreign exchange transactions.
Key Entities Referenced
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: A key document that provides the framework for risk management and inter-bank dealings, referenced for definitions and regulatory context.
Reserve Bank of India: The primary regulatory authority issuing the circular regarding disclosure of transaction costs for foreign exchange transactions.
Authorised Dealers: Entities regulated by the circular, required to disclose transaction costs for foreign exchange transactions to users.
Foreign Exchange Management Act, 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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