With the rupee inching closer to the 97 level against the dollar and the crude oil sizzling above the $ 100 per barrel mark, the Reserve Bank of India (RBI) has tightened its grip on the rupee derivatives market, introducing a package of regulatory measures designed to strengthen market discipline, curb excessive speculative activity and bring greater transparency to foreign exchange transactions.The central bank has announced restrictions on rebooking cancelled foreign exchange derivative contracts, sharply reduced the threshold for transactions without establishing underlying exposure, strengthened documentation requirements and introduced a new Foreign Exchange Risk Reserve (FERR). The changes could significantly alter how banks, corporations, financial institutions and currency traders manage their foreign exchange positions.Forex reserves dipped by $ 12.95 billion to $ 734.60 billion during the week ended October 2. The rupee has remained under pressure despite the huge inflows of over $ 143 billion under the FCNR scheme.For market participants accustomed to greater flexibility, the new rules mean tighter controls, additional costs and closer scrutiny.The RBI’s latest measures will raise the cost of taking large currency positions, restrict the rebooking of cancelled contracts and force banks to verify underlying exposures. The message is clear: the foreign exchange market must serve genuine economic needs, not become a playground for unchecked speculation.$100 mn window down to $5 mnOne of the most consequential changes is the reduction of the threshold for undertaking foreign exchange derivative transactions without establishing the existence of the underlying exposure. The RBI has slashed the existing limit from $100 million to $5 million equivalent across authorised dealers. The corresponding threshold for exchange-traded currency derivatives involving the rupee has also been reduced from $100 million to $5 million equivalent across all recognised stock exchanges taken together. This means a 95 per cent reduction in the threshold.Market participants can no longer rely on the earlier, much higher limit to undertake qualifying derivative transactions without establishing the underlying exposure. The tighter threshold is intended to reduce the scope for large positions that are not adequately linked to genuine foreign exchange risks.Story continues below this adHowever, this should not be interpreted as a blanket ban on all currency derivatives above $5 million. The key distinction is whether the transaction falls under the provisions allowing derivatives without establishing the underlying exposure.Also Read | RBI opens dollar lifeline for oil PSUs as rupee comes closer to 97, crude tops $100Rebooking no longer an optionThe RBI has also moved to prevent repeated cancellation and rebooking of rupee-involving foreign exchange derivative contracts. Under the new direction, authorised dealers must not permit users to rebook a foreign exchange derivative contract involving the Indian rupee, whether deliverable or non-deliverable, if the contract was cancelled with any authorised dealer after the issuance of the directions.The restriction applies to rebooking cancelled contracts, not to every new derivative transaction. The RBI has also clarified that rolling over contracts at maturity will continue to be permitted, subject to existing regulatory requirements.Analysts said repeated cancellation and rebooking can create opportunities for users to change positions as market conditions shift. Tighter restrictions make that flexibility harder to exploit and encourage participants to exercise greater discipline before entering into contracts.Story continues below this adFor businesses managing volatile currency exposures, the rule could make last-minute changes more difficult. Treasury departments may need to improve forecasting, assess hedging requirements more carefully and coordinate more closely with banks before committing to a transaction.No double-hedgingThe RBI is also strengthening the checks designed to prevent the same underlying exposure from being hedged through multiple authorised dealers.Banks must now obtain and retain an undertaking from users entering into rupee-involving foreign exchange derivatives to hedge contracted exposures. The undertaking must confirm that the same underlying exposure has not been hedged with another authorised dealer. This requirement places greater responsibility on both customers and banks. Businesses must make accurate declarations, while authorised dealers must maintain the prescribed documentation.The objective is to improve transparency and reduce the risk of duplicate hedging, where the same commercial exposure is used to justify multiple derivative positions. For legitimate businesses, this means additional paperwork and stronger internal controls. For banks, it means tighter compliance processes and a greater need to scrutinise customer declarations.Story continues below this ad20% forex risk reserve: A direct cost for banksThe introduction of the Foreign Exchange Risk Reserve by the RBI is another major development. For covered foreign exchange derivative contracts involving the rupee with a notional value exceeding $2 million equivalent, authorised dealers must maintain a reserve with the RBI in cash equal to 20 per cent of the rupee equivalent of each transaction’s notional amount.The requirement applies to the specified contracts used to hedge current-account exposures where the user purchases foreign currency against the rupee.Banks will need to set aside cash for the prescribed reserve rather than freely deploy that money elsewhere. The requirement could increase the cost of providing covered derivatives, influence pricing and encourage banks and customers to reassess how they structure their hedging transactions.The reserve is not automatically a 20 per cent fee charged to the customer. It is a cash reserve requirement imposed on authorised dealers for the specified contracts. Whether and to what extent customers face higher prices will depend on banks’ funding costs, pricing decisions and competitive conditions.Story continues below this adWhy is the RBI taking these measures now?The rupee has faced intense pressure from adverse capital flows, currency hedging demand and a challenging global environment. On October 9, 2026, the rupee closed at around 96.73 per US dollar, close to its record low, despite a recent interest-rate increase. Against this backdrop, the RBI appears to be targeting a key source of pressure that it can regulate directly: activity in the derivatives market.When participants buy dollars or build positions anticipating rupee depreciation, those transactions can amplify demand for foreign currency and intensify market volatility. The RBI’s measures are designed to tighten the link between derivatives activity and real economic requirements, make repeated contract cancellations harder to exploit, and impose a liquidity requirement on specified transactions.