Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions

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....999 (Act 42 of 1999), as amended from time to time. 2. RBI had earlier constituted a Working Group to review the guidelines for Hedging of Commodity Price Risk by Residents in overseas markets (Chairman: Shri Chandan Sinha). Based on the report of the working group and comments received on the report, draft directions for hedging of commodity price risk and freight risk were released for comments on Jan 12, 2018. Based on the feedback to the draft directions, the Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 have been finalized and are enclosed herewith. The revised directions shall come into force from April 1, 2018. 3. Residents hedging their commodity price risk and freight ris....

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....dging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 The Reserve Bank of India, in exercise of the powers conferred under Sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) hereby issues the Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 dated March 12, 2018 (the Directions). 1. Short Title and commencement 1.1 These directions shall be referred to as the Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018 and they shall come into force on April 1, 2018. 2. Definitions: i. Hedging - The activity of undertaking a derivative transaction to ....

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....sures to commodity price risk: Aluminum, Copper, Lead, Zinc, Nickel, and Tin. This list of eligible commodities would be reviewed annually. 4. Permitted Products - Permitted products refer to the following: a. Generic Products i. Futures and forwards ii.  Vanilla options (call option and put option) iii. Swaps b. Structured Products i. Products which are combination of either cash instrument and one or more generic products ii.  Products which are combination of two or more generic products 5. Hedging of Commodity Price Risk: Eligible entities having exposure to commodity price risk for any eligible commodity may hedge such exposure in overseas markets using any of the permitted products. 6. Hedging o....

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....ts may be permitted to eligible entities who are (a) listed on recognized domestic stock exchanges or (b) fully owned subsidiaries of such entities or (c) unlisted entities whose net worth is higher than INR 200 crores, subject to the condition that such product are used for the purpose of hedging as defined under these directions. iv. All payments/receipts related to hedging of exposure to commodity price risk and freight risk shall be routed through a special account with the bank for this purpose. v. Banks shall keep on their records full details of all hedge transactions and related remittances made by the entity. vi. Banks shall obtain an annual certificate from the statutory auditors of the entity confirming that the hedge tr....