RBI Allows Standalone Primary Dealers in NDD Contracts

Circular No. RBI/2025-26/78 A. P. (DIR Series) Circular No. 10, Dated 22.09.2025

1. Introduction

The Reserve Bank of India (RBI) has issued a significant directive expanding the scope of entities permitted to engage in non-deliverable derivative (NDD) contracts involving the Indian Rupee. This move reflects RBI’s ongoing efforts to deepen financial markets, enhance risk management avenues, and align India’s regulatory framework with global practices.

2. Inclusion of Standalone Primary Dealers

Under the new guidelines, Standalone Primary Dealers (SPDs) that are authorised as Authorised Dealer (AD) Category-III have now been permitted to transact in NDD contracts. This marks a notable broadening of participation, as previously the facility was restricted to a select group of institutions. The inclusion of SPDs is expected to increase liquidity in the derivatives market and provide them with additional tools to manage currency-related risks.

3. Previous Framework

Before this announcement, the facility to transact in Rupee-denominated NDD contracts was limited to AD Category-I banks operating International Financial Services Centre (IFSC) Banking Units and overseas banks. By extending this permission to SPDs, the RBI is effectively bridging a regulatory gap and placing these entities on a more level playing field with banks and other global participants.

4. Implications for Market Participants

The move is expected to have multiple benefits. SPDs will now be better positioned to hedge exposures and diversify their trading portfolios, thereby enhancing market resilience. Additionally, by expanding the base of participants in the NDD market, the RBI aims to improve price discovery and promote greater stability in Rupee trading. This step also underscores RBI’s commitment to fostering a more inclusive and competitive financial market ecosystem.

5. Conclusion

Effective immediately, the RBI’s directive marks a progressive step toward liberalising India’s derivatives market. By granting SPDs the ability to transact in Rupee-linked NDD contracts, the central bank has widened participation, improved risk management options, and reinforced confidence in the Indian financial system. This reform is expected to pave the way for deeper integration of India’s currency markets with global financial systems.

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