FEDAI

India's interbank foreign exchange market is made up of banks holding Authorised Dealer licences. Somebody has to write the rules of conduct between them — what the market hours are, how a trade is confirmed, what a broker must be accredited to do.

That body is FEDAI, the Foreign Exchange Dealers' Association of India.

It is an association of the banks themselves, not a statutory regulator. It was set up in 1958 and is incorporated under Section 25 of the Companies Act, 1956 — the section for non-profit companies. It acts as a self-regulatory body.

Its two headline activities, as the workbook describes them, are framing the rules governing the conduct of inter-bank foreign exchange business among banks and with the public, and liaison with the RBI for reform and development of the forex market.

The piece of FEDAI a currency derivatives candidate meets first is the clock. FEDAI stipulates the market timings for interbank rupee forex transactions — normal hours of 9.00 am to 5.00 pm IST on all working days.

Its role has changed over time. As global markets integrated and de-regulation accelerated, the workbook says FEDAI now plays a catalytic role rather than a directive one.

The constitution (Chapter 8, section 8.5.1). FEDAI was set up in 1958 as an association of banks dealing in foreign exchange in India — typically called Authorised Dealers (ADs) — as a self-regulatory body, and is incorporated under Section 25 of The Companies Act, 1956.

Its major activities, in the workbook's words: framing of rules governing the conduct of inter-bank foreign exchange business among banks vis-a-vis public, and liaison with RBI for reforms and development of the forex market.

The present functions, as listed:

1. Guidelines and rules for forex business.
2. Training of bank personnel in the areas of foreign exchange business.
3. Accreditation of forex brokers.
4. Advising and assisting member banks in settling issues and matters in their dealings.
5. Representing member banks before the Government, the Reserve Bank of India and other bodies.
6. Announcement of daily and periodic rates to member banks.

The market timings it stipulates (Chapter 1, section 1.3.6). For the OTC market, FEDAI has stipulated market timings for interbank INR forex transactions. Normal market hours for FCY/INR transactions in the interbank forex market as well as client transactions in India are 9.00 a.m. to 5.00 p.m. IST on all working days. The rules around that:

How its role has evolved. With continuing integration of global financial markets and an increased pace of de-regulation, the role of self-regulatory organisations like FEDAI has also evolved. In such an environment FEDAI plays a catalytic role for smooth functioning of the markets through closer co-ordination with the RBI and organisations such as FIMMDA and the Forex Association of India, and with market participants. It also maximises the benefits derived from synergies of member banks through innovation in areas such as new customised products and benchmarking against international standards on accounting, market practices and risk management systems.

What FEDAI is not. It is not the benchmark administrator. Reference rates for USD/INR and other major currencies are computed and disseminated by Financial Benchmarks India Private Limited (FBIL), recognised by the RBI as an independent benchmark administrator, which took on that responsibility with effect from 10 July 2018. FEDAI announces daily and periodic rates to member banks; FBIL publishes the reference rate used for settling exchange traded contracts.

A dealing room's day, against FEDAI's clock. A corporate treasurer calls his bank's dealing desk at three different times on a Thursday.

Now the same requests from a proprietary firm:

Where the value date lands. The Thursday spot deal at 6.15 pm is booked after the market close but before the midnight IST spot roll-over, so its value date is still counted from Thursday.

What FEDAI does for the bank itself. Trace a single dispute. Two member banks disagree over the confirmation of a USD 5 million swap.

The one figure to carry. FEDAI was set up in 1958, under Section 25 of the Companies Act, 1956, and its market window is 9.00 am to 5.00 pm IST.

Chapter 8, section 8.5.1, is the FEDAI entry: the 1958 founding, the Section 25 of the Companies Act, 1956 incorporation, the self-regulatory character, the two major activities, the six present functions and the evolved catalytic role alongside FIMMDA and the Forex Association of India. Chapter 1, section 1.3.6, is where FEDAI does its examinable work — the 9.00 am to 5.00 pm IST market hours, the value-cash cut-off, the Saturday rule and the midnight spot roll-over. Questions are recall-shaped: the year, the statute, what FEDAI is (a self-regulatory body of banks, not a regulator), and the market timings.

• FEDAI is a self-regulatory body of banks, not a statutory regulator. The RBI and SEBI regulate; FEDAI frames conduct rules for its members.
• 1958, and Section 25 of the Companies Act, 1956. Two different years in one sentence, and both get asked.
• FEDAI is not FBIL. FEDAI announces daily and periodic rates to member banks; FBIL computes and publishes the USD/INR reference rate, from 10 July 2018, and that is the rate exchange traded contracts settle against.
• FEDAI is not FIMMDA or the Forex Association of India. They are separate bodies it co-ordinates with.
• The 9.00 am to 5.00 pm window covers client transactions too, not only interbank deals.
• Trading after hours is allowed; value cash after 5.00 pm generally is not. Two different rules, and the exception for individuals, joint accounts and proprietary firms applies to the second.
• Saturday is not a working day for forex business — except for those individual transactions, which may be done even on Sundays and holidays per the bank's internal policy.
• FEDAI accredits forex brokers. It does not register trading members of an exchange; that is the exchange and SEBI.