Standard Chartered carries out first OTC derivative for gold price hedging from GIFT City
Standard Chartered Bank has carried out the maiden over-the-counter derivative deal for hedging gold price risk from the Gujarat International Finance Tec-City (GIFT City), around two months after the International Financial Services Centres Authority (IFSCA) permitted such transactions.
"This transaction marks the beginning of resident Indian companies accessing the deep liquidity of global bullion market and managing their price risk efficiently through customised derivative solutions", Parul Mittal Sinha, head - financial markets, India and South Asia, and Co-Head macro trading ASA, Standard Chartered Bank, told ET.
The over-the-counter (OTC) derivative deal, which was worth $4 million and had a six-month tenure, was carried out between the UK-based bank’s IFSC Banking Unit in GIFT City and a major branded jewellery maker, industry sources said.
On June 27, 2024, the IFSCA, which is the regulator for the GIFT International Financial Services Centre, said that it had decided to permit IFSC Banking Units (IBUs) to undertake OTC derivatives on gold and silver and offer such derivatives to their clients.
The regulations enable corporates exposed to gold price risk on imported gold as well as domestically produced or procured gold to hedge such risk via OTC derivatives in the International Financial Services Centre at GIFT City.
In a master direction issued in December 2022 and subsequently updated in April this year, the Reserve Bank of India had said that eligible entities having exposure to price risk of gold may hedge such exposure in the International Financial Services Centre (IFSC), subject to certain stipulations.
The RBI had said that banks may allow eligible entities to hedge commodity price risk and freight risk overseas, including IFSC, using permitted products and may remit foreign exchange in respect of such transactions after satisfying themselves that entities have exposure to such price risk, either contracted or anticipated.
The central bank also said that banks must be satisfied that the quantity proposed to be hedged, and the tenor of the hedge are in line with exposure and that in case of OTC derivatives, the requirement to undertake OTC hedges is justified.
Source: https://economictimes.indiatimes.com/