Simplified Hedging Facility using DolphinFX

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Simplified Hedging Facility(SHF), as the name suggests, is introduced by the Reserve Bank of India to minimize the tiresome task of hedging, popularize the idea among the traders and welcome them to a world of risk-free trading.

The new Simplified Hedging Facility will aid the FX Traders to hedge exchange rate risk on transactions, with the maximum trade limit of USD 30 Million (or its equivalent) on the gross basis that can exceed up to 150% (USD 45 Million). No documentary evidence is required for SHF hedging route. However, basic details of the underlying transaction in a standardized format are needed for Over the Counter (OTC) hedge contracts. But this is indeed a walk in the park when compared to the earlier regulations for hedge contracts. In order to make the process of hedging more easier, KGiSL has formulated an effective solution that can skillfully handle all the corporate FX trades in the name of DolphinFX.

It is a robust and comprehensive solution for the treasury middle office team to handle, monitor and report corporate FX trades. DolphinFX caters to support ‘designated banks’ to cover all SHF OTC derivative trade process as instructed by RBI. The solution is developed on a customizable framework to handle any type of regulatory changes on the treasury operations and hence we are now equipped to facilitate the users in handling the newly introduced Simplified Hedging Facility. DolphinFX simplifies the operations by determining the minimal documents now required from a client for executing a trade till automatically setting up limits for the client based on previous year transactions. It constantly monitors the trade and helps the clients carry out the trades in the best way possible.

Product Coverage

DolphinFX caters to a wide audience as counterparties of both resident and non-resident are allowed to hedge. It covers product types viz., FX Forward and FX Options. FX Options includes plain vanilla and exotic options.  DolphinFX supports all currencies and trade logic of corporate FX trades. It can customize to handle trade data from all major front office applications. It has the flexibility to handle trade logic to customize trade logics based on the regulatory changes.

Limit Monitoring

Limit Monitoring is considered to be an important aspect of the hedging process. Designated bank will assess hedging requirements and can set a limit up to stipulated cap on the outstanding contracts. DolphinFX provides flexibility for users to

  • Pre-define limits as per RBI regulation
  • Set limits for individual clients
  • Monitor them on the basis of AD Cat-I banks or Non AD Cat-I banks
  • Automatically count the limit breach
  • Validate limit breach for mentioned number of counts and get alerts accordingly
  • Maintain limit breach date and counts
  • Maintain tenure individually for all clients
  • Maintain authenticity and comply with regulatory norms

Processing of Settlement Charges

Settlement charges in SHF is more crucial, it is perplexed to calculate the settlement charges while considering various scenarios and limitations. Complexity in calculation of settlement charges for amendment trades or error trades, if the trades are later processed as booking, it results in process delay. In hedging OTC contracts, trade booking and underlying cashflow should takes place with the same AD Cat-I bank.

DolphinFX makes onerous processing of settlement charges simplified which can be calculated based on various loss/gain scenarios by improving the processing speed. DolphinFX covers settlement charge calculation for current account transactions. Settlement charges can be calculated for both export and import exposures. Settlement charge calculation includes amendment trades and error trades which are later processed as booking trades.

Reports & Feeds

Customized trade reports can be generated in DolphinFX as per designated banks requirement for both export and import exposure. The endorsement view encapsulates trade details so the entire trade details can be tracked in DolphinFX and maintained separately for each client.

Conclusion

DolphinFX helps the treasury back office users to process the trades in an easy and efficient way. It keeps track of the entire trade details which can be viewed whenever necessary. Settlement charges are simplified and calculated for all trade types with amendment trades, by reducing the time consumption of the process. With technology in the right spot, we have the capability to revolutionize your hedging experience.

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