**Executive Summary**
This is a draft circular from the Reserve Bank of India (RBI) to all Authorised Dealers regarding the disclosure of transaction costs for foreign exchange transactions. It references the Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016, and mandates increased transparency for retail users. The new instructions become effective three months from the issuance date of the circular.
**Key Points / Main Content**
* **Scope of Foreign Exchange Contracts:** The circular applies to the following foreign exchange contracts involving INR or otherwise:
* Foreign exchange cash
* Foreign exchange tom
* Foreign exchange spot
* Foreign exchange derivative contracts
* Foreign currency interest rate derivative contracts
* **Disclosure Requirements for Derivatives (Existing):** For foreign exchange derivative/ foreign currency interest rate derivative contracts offered to retail users, Authorised Dealers must:
* Provide the mid-market mark/bid and ask price before entering into the contract.
* Include the same in the deal confirmation/term sheet.
* **Disclosure Requirements for Cash/Tom/Spot (New):** For foreign exchange cash, foreign exchange tom, and foreign exchange spot contracts offered to retail users, Authorised Dealers must:
* Provide details of the total transaction cost, including all relevant costs and charges (sending and receiving fees, intermediary fees, exchange rate and currency conversion charges), before entering into the contract.
* Include the same in the deal confirmation.
* **Effective Date:** The instructions become effective three months from the date of issuance of the circular.
* **Definitions:** The terms "retail user" and "Authorised Dealer" have the same meaning as defined 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**
**Stakeholder: Authorised Dealers**
**Impact:** Authorised Dealers must now provide more detailed transaction cost information to retail users for foreign exchange cash, tom, and spot contracts.
**Action Required:** Authorised Dealers must update their systems and procedures to comply with the new disclosure requirements within three months of the circular's issuance.
**Stakeholder: Retail Users**
**Impact:** Retail users will receive increased transparency regarding the total transaction costs associated with foreign exchange transactions, enabling them to make more informed decisions.
**Action Required:** No specific action is explicitly required of retail users. However, they should expect to receive the detailed transaction cost information from Authorised Dealers.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the financial system.
Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016: The referenced master direction to which this circular provides additional instructions regarding transaction cost disclosure for foreign exchange transactions.
Foreign Exchange Management Act, 1999: The Indian law governing foreign exchange transactions, under which the circular is issued.
Section 45W of the Reserve Bank of India Act, 1934: Section of the RBI Act granting powers for issuing directions.
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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