Monday, January 15, 2007

No misselling, shadow deals in foreign exchange derivatives

Reserve Bank of India (RBI) directed that the Banks would be held responsible for mis selling derivatives if they enter into deal where a contract is not consistent with the user’s business. RBI has also barred banks from entering into derivative deals to hedge against risk positions entered overseas.
As per draft guidelines on derivatives, it is provided that market-makers should carry out proper due-diligence regarding user appropriateness and suitability of products before offering derivative products to users. Each market-maker should adopt a Board-approved Customer Appropriateness & Suitability Policy for derivatives business. It is also stated that a user should not have a net short-options position, either on a standalone basis or in a structured product, except to the extent of permitted covered calls and puts.


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