What Is the Foreign Exchange Dealers Association of India (FEDAI)?

The Foreign Exchange Dealers Association of India (FEDAI) is an association of commercial banks that specializes in the foreign exchange (forex) markets in India. These institutions are also called Authorised Dealers or ADs.

Created in 1958 and incorporated under Indian law, Section 25 of The Companies Act of 1956, the Association regulates the rules that determine commissions, fees, and charges that are attached to the interbank foreign exchange business.

Key Takeaways

  • Formed in 1958, FEDAI is an association of banks that deal with Indian foreign exchange markets.
  • The FEDAI is a self-regulating organization (SRO) that formulates rules around Indian interbank forex dealings.
  • Some core functions of the FEDAI include advising and supporting member banks, representing member banks on the Reserve Bank of India (RBI), and announcing rates to member banks.
  • FEDAI also help stabilize markets through its cooperation with the RBI and the Fixed Income Money Market and Derivatives Association of India (FIMMDA).

Understanding the Foreign Exchange Dealers Association of India

The FEDAI determines many of the rules that oversee the day-to-day forex transactions in India. In addition to creating rules, FEDAI assists member banks by acting as an advisor, training personnel about Foreign Exchange Business, and accrediting foreign exchange brokers.

The FEDAI's core functions include:

  • Advising and supporting member banks with issues that arise in their dealings
  • Representing member banks on the Reserve Bank of India (India's central bank)
  • Announcement of daily and periodical interest rates to member banks
  • Guidelines and Rules for Forex Business.
  • Training of Bank Personnel in the areas of Foreign Exchange Business.
  • Accreditation of Forex Brokers

As of December 2017, FEDAI member banks spanned 102 members among the public sector, private sector, foreign banks, as well as co-operative banks and financial institutions.

Foreign Exchange Dealers Association of India and Self-Regulating Organizations

The FEDAI is a self-regulating organization (SRO). SROs exist independently of national governments (such as FINRA in the United States) yet still have the power to create and enforce industry regulations and standards. SROs place enormous emphasis on ethics and equality. SROs are non-governmental agencies, which can be helpful in industries, such as finance, that are international.

Additional examples of SROs include the Investment Dealers Association of Canada and the National Association of Securities Dealers (NASD) in the United States.

FEDAI has grown in its role as an SRO in India and now plays a key role in stabilizing markets through its cooperation with the Reserve Bank of India (RBI) and the Fixed Income Money Market and Derivatives Association of India (FIMMDA). FEDAI continues to work with its partners to develop customized products and adhere to international accounting and risk management standards.

The FEDAI does not publish foreign exchange turnover data.

FEDAI and Indian Forex Benchmarks

In March 2018, FEDAI joined forces with Financial Benchmark India (a company formed to administer money market benchmarks rates), FIMMDA, and the Indian Banks’ Association (IBA) to set benchmarks for Indian rupee interest rates and foreign exchange. Financial Benchmark India Private Ltd (FBIL) began publishing these rates in April 2018. Rates have been displayed daily since March 19, 2018.

FBIL announces the benchmark rate for Overnight Mumbai Interbank Outright Rate (MIBOR) on a daily basis, except Saturdays, Sundays, and local holidays. The benchmark rate is calculated based on the actual call money transactions data obtained from the NDS-call platform of Clearing Corporation of India Ltd (CCIL). The CCIL acts as the Calculating Agent. The rate is announced at 10:45 a.m. every day. However, if the time is extended due to the non-fulfillment of threshold criteria, the dissemination time may get suitably extended.

FBIL also manages the benchmark Indian Rupee (INR) volatilities on a daily basis except for Saturdays, Sundays, and public holidays. This index is used by forex options traders active in the Indian currency market. The index is calculated using a matrix of INR options implied volatilities and is determined on the basis of data obtained through a poll among participating banks out of FBIL's list of identified submitters. The options volatility matrix is announced at 6 p.m. every day.