**Executive Summary**
This document from the Reserve Bank of India addresses the disclosure of transaction costs for foreign exchange transactions by Authorised Dealers. It amends the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016, requiring more detailed cost disclosures to retail users. The instructions in the circular will be applicable from three months from the date of issuance.
**Key Points / Main Content**
* **Scope of Foreign Exchange Contracts:**
* The circular applies to foreign exchange cash, tom, spot, derivative contracts, and foreign currency interest rate derivative contracts.
* **Derivative Contract Disclosure:**
* Authorised Dealers must provide the mid-market mark/bid and ask price of foreign exchange/currency interest rate derivative to a retail user before entering the contract.
* These prices must be included in the deal confirmation/term sheet.
* **Cash, Tom and Spot Contract Disclosure:**
* For foreign exchange cash, tom, and spot contracts offered to retail users, Authorised Dealers must provide details of the total transaction cost.
* This total cost includes all relevant costs and charges, such as sending and receiving fees (including intermediaries), foreign exchange rate, and currency conversion charges.
* Total cost must be disclosed before entering the contract and included in the deal confirmation.
* **Effective Date & Definitions**
* These instructions shall be applicable with effect from three months from the date of issuance of these instructions.
* 'Retail user' and 'Authorised Dealer' shall have the same meaning as assigned in the Master Direction.
**Impact Analysis**
**Authorised Dealers**
* **Impact:** Enhanced disclosure requirements for foreign exchange transactions with retail users, including providing detailed breakdowns of costs before entering contracts.
* **Action Required:** Update systems and procedures to capture and disclose all relevant transaction costs for foreign exchange transactions. Ensure compliance with the circular's requirements within three months from the date of issuance.
Key Entities Referenced
Reserve Bank of India: The regulator issuing the circular on disclosure of transaction costs for foreign exchange transactions.
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: The primary document that the circular refers to, providing the context and definitions for the current instructions.
Authorised Dealers: The entities regulated by this circular, required to disclose transaction costs for foreign exchange transactions.
Foreign Exchange Management Act, 1999: A key law that provides legal backing to this circular.
Reserve Bank of India Act, 1934: A key law that provides legal backing to this circular.
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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