Zerodha tells its clients to close FX derivatives position before April 5

Zerodha has told its clients to close FX derivatives position before April 5 to comply with new RBI norms.

This is expected to force out most of the market’s most active players, drying up volumes that reached $5 billion-a-day. Zerodha is among the first brokerage asking clients to close out contracts after exchanges reaffirmed the ruling from the central bank that participants must have an actual foreign-exchange exposure.

That rules out individual traders and speculators who comprise a large portion of the volume.

“At least 70% or more of the volume will dry up — half the market is arbitragers,” said Sajal Gupta, executive director and head of forex and commodities at Nuvama Institutional. “Those traders won’t take fresh positions and have to square off existing positions.”

The rule aligns with the Reserve Bank of India’s broader foreign exchange management policy that has seen the authority tamp down on swings in the rupee in the run up to the inclusion of the nation’s bond markets in global indexes from June. The rupee has been one of the least volatile currencies among emerging market currencies globally.