In a bid to curb volatility in the currency market, Reserve Bank of India (RBI) prohibited banks from taking proprietary position in the currency futures and exchange-traded currency options market.
This effectively restricts them to transact only on behalf of clients. Banks carry out currency trading on behalf of their clients while they have a separate desk to trade in the foreign exchange market of their own. The latter is called proprietary trading.
In other words, any transaction by them in these markets will have to be necessarily on behalf of their clients, RBI said in a notification issued recently.
Experts feel that proprietary trading adds to more volatility to the rupee-dollar exchange rates. Thought the volume could not be ascertained but traders are of opinion that the ban on proprietary trading is expected to come handy especially when the rupee continues to decline against the US dollar.
With the same intent to contain volatility in the rupee exchange rate, the Securities and Exchange Board of India (SEBI) tightened the exposure norms for currency derivatives.
The Indian currency, which was trading around 55 a dollar some months ago, depreciated to a record low of 60.62 a dollar in recent trading session.