Overseas Exchanges-Commodity Hedging

Overview

RBI circular released on March 12, on Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018, have permitted residents other than Individuals, that purchases/sells a commodity (in India or abroad) whose price is fixed by reference to an international benchmark or  that purchases/sells a product (in India or abroad) which contains a commodity and the price of the product is linked to an international benchmark of the commodity to hedge price risk in Overseas markets, with the following Permitted products.

a) Generic Products

  • Futures and forwards
  • Vanilla options (call option and put option)
  • Swaps


b) Structured Products

  • Products which are combination of either cash instrument and one or more generic products
  • Products which are combination of two or more generic products.

Note however that Structured products 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.

Process Flow to Hedge Commodity Price Risk on Overseas Exchanges

  1. India entity opens Commodity Trading Account with Phillip Capital Inc to access overseas commodity exchanges. (Global Exchange List for Commodity Futures and Options below)
  2. Account opening process can be completed through PhillipCapital DMCC. Process flow for account opening can be submitted on demand. 
  3. Concurrently, approach any of the AD I banks. Advised that AD I banks with existing banking relationship be approached with the requirement to hedge commodity price risk overseas for ease of operations.
  4. Submit to AD I nature of commodity price risk exposure, Overseas Exchange Trading Account Details,  Intended quantity of Commodity desired to be hedged and Indicative USD margin requirement to  hedge the intended quantity of commodity.  AD I will permit USD remittance for the purpose of hedging commodity price risk on overseas exchanges on these submission. 
  5. Report on Quarterly Basis to AD I, as indicated in Annexure I of the RBI circular on Hedging of Commodity Price Risk and Freight Risk in Overseas Markets (Reserve Bank) Directions, 2018.

Global Exchange / Market Outreach facilitated by PhillipCapital Group

Asset Class Exchange
Commodity Futures & Options Chicago Mercantile Exchange (CME) - includes CBOT, COMEX, NYMEX
Intercontinental Exchange (ICE) - includes NYBOT and LIFFE
Kansas City Board of Trade (KCBT)
London Metals Exchange (LME) *
Dubai Gold and Commodities Exchange (DGCX)
Bursa Malaysia Derivatives Exchange (BMD)
Singapore Commodity Exchange (SGX)
Tokyo Commodity Exchange (TOCOM)
EUREX
HKEX
Hong Kong Futures Exchange (HKFE)

* Provides access

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