IFSCA circular dated 3rd March, 2021 allowing banking units located in International Financial Services Centre to operate unallocated accounts for trading, participating in derivative transactions, alongwith rules and procedures for the same. Gist of the said circular follows.
- This circular is being issued to enable Banking Units – IBU (Indian Banking Units) /FBU (Foreign Banking Units) in IFSC to operate Unallocated Accounts for the purpose of trading, hedging and swapping with Physical Gold / Silver (Allocated).
- The following activities are permitted under the International Financial Services Centres Authority (Banking) Regulations, 2020:
a) The BUs are permitted to open Unallocated Accounts for undertaking Trading activities under Clause 13(3) of the regulations. To enable such activities, BUs may permit the opening of accounts by their customers under Clause 11 of the
b) The BUs are permitted to participate in derivative transactions through Unallocated Accounts under Clause 13 (6) of the regulations.
- All BUs (IBU/FBU) are permitted to open Unallocated Accounts in Gold and Silver subject to the Risk Management Framework and Disclosures.
- An Unallocated Account may be opened only with authorized members of the London Precious Metal Clearing Limited.
Risk Management Framework
- IBU/FBU in IFSC may open Unallocated accounts in gold and silver for the purpose of Trading, Hedging, Settlement, swapping with physical bullion (Allocated). The BUs may trade on recognized commodity exchanges or over-the-counter.
- BUs should frame an appropriate policy and fix suitable limits on this function. The limits must be communicated to the IFSCA as soon as the approval from the Board/Management Committee is received.
Position and Gaps
- The net overnight open position and the aggregate gap limits in XAU & XAG as a limit from the existing trading limits of currencies should be communicated to IFSCA immediately after the approval of the Board / Management Committee.
- Subject to compliance with the provisions of paragraphs 6 and 7, BUs may freely undertake transactions in unallocated XAU and XAG as under:
(i) Buying/Selling/Swapping XAU and XAG in unallocated accounts against any foreign currency or Physical Bullion (Allocated).
(ii) Buying/Selling/Swapping Bullion against another foreign currency to cover client transactions or for adjustment of own position.
(iii) Initiating trading positions.
A. NOOPL(Bullion) – Net Overnight Open Position Limit in Bullion NOOPL in bullion may be fixed by the Boards of the respective banks and communicated to IFSCA immediately.
B. (AGL-Bullion) Aggregate Gap Limits
AGL for bullion may be fixed by the Boards of the respective banks and communicated to the IFSCA immediately.
- The Treasury/Risk Management of the Head Office shall monitor the utilization and adherence to the limits prescribed and report the same to ALCO / (AssetLiability) Internal Audit Committee of the Bank.
- IBU/FBU should also have a system in place to demonstrate, whenever required, the various components of the NOOP for bullion as prescribed in the guidelines for verification by IFSCA.
- Transactions undertaken by BU till the end of the business day may be computed for calculation of Bullion Exposure Limits. The transactions undertaken after the end of the business day may be taken into the positions for the next day. The end
of the business day time may be approved by the bank’s Board.