RBI proposes forex platform for retail participants
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The foreign exchange market in India may be broadly divided into the interbank segment and the retail segment. While proprietary electronic dealing platforms of individual banks and Multi-Bank Portals MBPs are also available, access to them is restricted to retail customers with a minimum order size. In one-to-one negotiated dealing over the phone, customers with large order size command more negotiating power compared to the ones having smaller forex requirement. The issue of transparent and fair pricing in the retail forex market has been coming up in various fora and public interactions for some time.
This issue has also attracted attention of regulators worldwide, culminating in publication of the FX Global Code FXGC developed by a partnership between central banks which included the Reserve Bank of India and Market Participants from 16 jurisdictions around the globe.
Principle 14 of the said code requires that the Mark Up the spread or charge that may be included in the final price of a transaction applied to Client transactions by Market Participants acting as Principal should forex trading in india rbi guidelines 2017 fair and reasonable. Banks are also required to ensure that customers with a low volume of activity are not penalised. While considering possible solutions for the above issue the following 2 options were considered:.
Facilitate price determination of retail customer transactions in the market forex trading in india rbi guidelines 2017 providing them direct access to the foreign exchange market.
While choosing option a would make enforcement of the guidelines easier it has the disadvantage of interfering in the market determination of exchange rate. It might also incentivise the banks to charge their customers at or very close to such a cap, without determining the charges based on their costs. Option b seeks to complement the current practice of banks deciding on spreads in one-to-one negotiated dealing with clients with client pricing being directly determined in the market.
It is then left to the retail client to choose between the options according to its convenience. This is likely to provide transparency while enhancing competition leading to better pricing for all types of customers, without differentiating forex trading in india rbi guidelines 2017 on the basis of order size.
Option b is preferred as forex trading in india rbi guidelines 2017 is a market based solution and because it eliminates the price risk faced by banks in warehousing customer orders until they are aggregated and covered in the interbank market. They would develop an electronic spot trading platform for retail customers modelled on their existing interbank spot trading platform. Based on experience gathered, vendors of other FX platforms may be allowed to offer similar retail platforms in the future.
The retail market will be separate from the interbank market. AD Cat-I banks may access both interbank and retail market while the retail customers would be allowed to access only the retail market for dealing.
The retail market will have the same market hours as the interbank market The AD Cat-I bank shall set the limits upto which orders may be placed on the retail forex platform by its customers. Trades will be executed by anonymous order matching on price-time priority. Buy orders on the retail platform will be matched against sell orders therein and vice versa. The system will have a functionality to aggregate customer orders at the same rate up to the minimum lot size of the interbank market currently USD 0.
This will ensure that prices in both the markets are in line. Aggregation of orders in vii will be across customers of same bank so as to minimise the number of deal tickets generated for the inter-bank deals. Each matched trade of the customer would result in 2 transactions i.
Thus, no change in the existing settlement system is envisaged. Banks may charge their customers a fee towards processing expenses. Banks will be required to publicly declare such fees. A schematic representation of the order execution process is shown at the end of the discussion paper. Feedback on Retail FX platform by January 1, Skip to main content. Search the Website Search. Reports kb Date: Issues to be addressed 4. Current guidelines on charges for forex transactions 5.
Possible means for addressing the issue 6. Implementing the selected solution 7. Introduction The foreign exchange market in India may be broadly divided into the interbank forex trading in india rbi guidelines 2017 and the retail segment. Issues to be addressed The issue of transparent and fair pricing forex trading in india rbi guidelines 2017 the retail forex market has been coming up in various fora and public interactions for some time.
Possible means for addressing the issue While considering possible solutions for the above issue the following 2 options were considered: Mandating a cap on spreads charged over the inter-bank rates by banks to their retail customers. The key features of the proposed platform are as: The customer can access the retail market platform through an AD Cat-I bank. The maximum order size shall be USDThe features may undergo change depending upon feedback received on this discussion paper.