The Best Indian SEBI Regulated Forex Brokers
Forex trading in India is relatively new. Indeed, it is so new some potential investors are confused as to whether it is legal. So first, maybe we should try and clarify the situation. India seems to have its own take on the idea of Forex trading. Forex trading, as many of you will understand it, is actually illegal. Yes, there are a number of offshore online brokers which allow Indian residents to trade foreign currencies online, but the ruling from the Royal Bank of India is that it is not allowed. Should an individual be found to be breaking this rule, it is a non-bailable offense. There is, however, a way for Indian residents to participate in Forex trading and that is by trading in currency derivatives, and can only be done through a stock exchange recognized under the Securities Contract (Regulation) Act 1956. There are a number of regulators for the financial industry in India, but those of you considering Forex trading will be most interested in SEBI.
SEBI and SEBI regulated brokers
The regulatory body responsible for Forex trading is SEBI, which stands for the Securities and Exchange Board of India. Established under the SEBI Act 1992, it is the principal regulator for stock exchanges in India. The functions of SEBI include:
- Protecting investor interests and ensuring the safety of their investments
- Preventing malpractices and fraudulent activities by balancing self-regulation of business and statutory requirements
- Promoting and regulating the securities market in India
- Developing a code of conduct for intermediaries such as SEBI brokers, underwriters
Forex brokers in India are governed by SEBI regulations, whether domestic or foreign. When SEBI was originally established it had no statutory power. But in 1995, following an amendment to the Securities and Exchange Board of India Act 1992, it was given additional statutory power. In the same year, it was also constituted as the regulator of capital markets under a government resolution. SEBI responds to the needs of three groups, the issuers of securities, the investors, and market intermediaries. It also has three functions, quasi-legislative, quasi-judicial and quasi-executive. In its executive capacity, it conducts investigations and enforcement action. In its judicial capacity, it passes rulings and orders. While its legislative powers allow it to draft regulations. All three roles performed by one body makes SEBI a very powerful organization.
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How SEBI performs its functions
SEBI has three functions, developmental, protective, and regulatory.
- Checking for price rigging – ths is prohibited because it can cheat and defraud investors
- Prohibits insider trading – SEBI has been known to take strict action on insider trading
- Prohibits fraudulent and unfair trade practices
- Trains intermediaries of the securities market
- Adopts a flexible and adoptable approach, for example, by allowing internet trading through registered stock brokers, and by making underwriting optional
- Drawing up rules and regulations and a code of conduct for intermediaries to follow
- Bringing intermediaries under regulatory bounds and making private placement more restrictive
- Registering and regulating SEBI stockbrokers, merchant bankers, sub-brokers, trustees, share transfer agents and anyone else associated with stock exchanges
- Registering and regulating the work of mutual funds
- Regulating company takeovers
- Making inquiries and auditing stock exchange
The rules and procedures for Forex trading in India
Now you’ve got an understanding of the legality of Forex trading we’ll explain the rules and processes which govern this type of trade. A number of organizations have been involved in setting up the framework for derivative trading. For example the Royal Bank of India and SEBI. However, the legal guidelines are provided by the Foreign Exchange Management Act. The RBI and SEBI allowed trading in currency derivatives to take place from 2008. There are three stock exchanges through which you can trade. The National Stock Exchange (NSE), MCX-SX and the United Stock Exchange (USE). In the beginning, trading could only take place for the INR/USD currency pair. But GBP, EURO, and the Japanese Yen (JPY) were added later. And the RBI has recently relaxed the rules even further to allow EUR/USD, GBP/USD, and USD/JPY. Currency derivatives are traded on margin, which means you have to deposit an initial margin with the exchange through your chosen intermediary. The contracts are always settled in cash and in Indian Rupees. It is possible for futures to have a cycle ranging from one to twelve months. Lots sizes for futures are 1000 per unit unless it is for the Japanese Yen/Indian Rupee pair in which case it is 100,000 units.
SEBI uses SCORES to handle customer complaints
SCORES (SEBI Complaints Redress System) is a web-based centralized grievance redressal system which has been developed by SEBI for registering and tracking complaints made from investors about SEBI registered entities. The advice given is always to address any complaints with the company in question in the first instance. Should you be unable to reach a mutually satisfactory resolution you will then be able to lodge your complaint online with SEBI and follow its status. SEBI is able to help investors with complaints relating to the issue and transfer of securities and non-payment of dividend by SEBI list companies. It is also able to handle complaints against various intermediaries such as SEBI regulated brokers, and certain related issues. When the complaints are received they are examined and the appropriate action taken to redress the issue. SEBI is unable to act as a judge or an arbitrator and force the company to resolve the complaint. It will, however, continue to monitor the situation and send reminders, hold meetings and issue pre-enforcement letters. There are securities laws and other laws dealing with legal rights and remedies if an investor has suffered a wrongdoing. The ultimate course of action if SEBI is unable to get the situation resolved is to seek resolution through the courts, consumer courts, or arbitration. We should stress, however, these options can be very time-consuming and very costly. So, should always be used as a last resort.