The importance of a regulatory and oversight authority in Forex cannot be understated, whether the body operates in a developing or even developed countries. Unlike other countries where Forex trading is advanced, FX trading in India is fairly new. The legality of FX trading in the Asian country has also been contentious. Many novice and even expert currency traders consider that FX trading in the country is illegal and this is partly true. Trading currencies, particularly FX trading is actually illegal in India although it is not uncommon to find a number of brokerage companies that allow residents from the Republic of India to trade on their platforms. This is, however, not a cause for alarm for Indian residents as there is a way for these residents to engage in Forex trading legally. Although the Bank of India still maintains the illegality of trading currencies, the only way to do it legally is to trade in currency derivatives. However, it is only possible to do this through a stock exchange which is approved or recognized under the Securities Contract (Regulation) Act of 1956.
SEBI is the financial regulatory body in India that regulates currency derivatives trading among other securities exchange markets. It stands for Securities and Exchange Board of India. It was formed in 1992 pursuant to the Securities and Exchange Board of India Act of 1992 as the primary regulator for all the stock exchanges in India. SEBI regulates all the forex brokerage companies in India regardless of whether they are onshore or offshore brokerage firms. During its establishment in 1992, the firm was merely an oversight authority with no statutory powers but this was later changed. Amendments to the SEBI act were made in 1995 where the board was given statutory power, which allows them to place enforcement mechanisms. It was also in this year that the board was given the power to regulate the capital markets following a government resolution.
Regulations by SEBI mainly affects three stakeholders including the retail investors, intermediaries in the stock exchange market and the primary issuers of securities. The board has a number of functions including quasi-judicial, quasi-executive and quasi-legislative functions. This means that the board carries out a plethora of functions. For example, the board is responsible for conducting investigations and even enforcing policies when acting in its executive capacity. In its legislative capacity, the board is allowed to draft policies and regulations that govern the securities market. Under its quasi-judicial capacity, the board has the power to pass orders or even make rulings. SEBI is a powerful entity due to the myriad of functions and powers bestowed upon it.
There are a number of functions that has been mandated to SEBI as the primary securities regulator in India. These functions can be categorized into three including:
The Securities and Exchange Board of India has a number of developmental functions which aim at improving the trading of securities, both forex and other securities that are traded in India. For example, one of the primary developmental functions alloted to SEBI is training market participants and intermediaries in the Indian securities market. This is a vital function as the Indian securities exchange market has been growing slowly as compared to the securities markets of other advanced countries. Another developmental function carried out by SEBI is placing flexible policies and approaches which aim at improving the overall securities exchange market. The SEBI, for example, allows the trading of forex derivatives and other securities through the internet. It carries out this function by ensuring that all the brokers who carry out these functions are registered and have the appropriate licenses.
The protective function of SEBI is one of the important roles and functions that the board has been mandated to carry out. An example of this function is SEBI’s role in ensuring that there is no price rigging. Price rigging in forex is an illegal act in which the brokers or other intermediaries work together to fix prices of commodities, usually inflating them at the detriment of the consumer. Price rigging is frowned upon since it is a way to defraud and cheat forex investors. Failure to prevent price rigging may also discourage investors from participating in the FX market. Another protective function of SEBI, like other FX regulatory bodies is to eliminate any forms of insider trading. Insider trading is one of the common malpractices in the trading of securities. Insider trading is the use of information or material that is not in the public domain, by insiders, in a bid to accrue profit. Insiders in a firm are considered to be any individual who has non-public access to information about a particular company or one who has more than a 10% shareholding in a company. Over the recent past, SEBI has been known to have a stern stand over insider trading and takes strict action in the event that an individual or broker uses non-public information to gain profits illegally. SEBI also ensures there is no fraudulent or unfair FX trading practices.
SEBI’s regulatory functions are perhaps the primary functions alloted to the board. One of the primary functions of the board is to create rules and regulations for all market participants and FX intermediaries. It ensures that there is a comprehensive code of conduct for the FX brokers to follow and also ensures that the codes of conduct or ethics are strictly followed. SEBI also ensures that the Forex intermediaries are registered and follow the prescribed rules of trading. The board regulates a number of intermediaries, which include trustees, stockbrokers, share transfer agents, merchant bankers and even sub-brokers. The licensing and regulation of mutual funds are also part and parcel of SEBI’s mandate in regulating the securities market in India. Mergers and acquisitions are also part of SEBI’s role in the securities market. The board ensures company takeovers are well sanctioned and that they follow all the rules.
SEBI takes its regulation functions quite seriously and is thus considered one of the most influential authority in the regulation of securities around the world. To achieve this, the regulator ensures that it imposes a number of guidelines on Forex brokers who are regulated under the Indian regulatory body. One way that FX brokerage firms are regulated by the Indian regulatory body is by ensuring that each FX brokerage company is supervised in the form of regular audits of financial information and trade practices to ensure there are no malpractices or financial discrepancies.
SEBI also requires that forex trading in the country should only be offered if the currency pairs involve the Indian rupee (INR). This has ensured that the only currency pairs to be traded with the INR include JPY, USD, EUR and GBP. Compared to other regulatory bodies, the guidelines imposed by SEBI are somewhat strict and lead to harsher sanctions. Failure to comply with these regulations, for example, can lead to a number of implications, which include the loss of trading licenses, legal tussles or even incarceration.
Founded in 2008, Plus500 has been rated as one of the best forex brokers in CFD trading of various financial instruments such as stocks, currencies, ETFs and commodities among others. With a market capitalization of more than $1 billion dollars, you can rest assured that any investments you make with the brokerage firm is secure. The company is also regulated by a number of regulatory authorities which include the Financial Conduct Authority, Cyprus Securities Exchange Commission and the Australian Securities & Investments Commission. It also offers a number of web-based and mobile based platforms, which enables traders to trade currencies in almost any part of the world.
This is a Dublin based FX and CFD broker that was initially founded as AvaFX in 2006 before re-branding to its current name. It offers a plethora of financial instruments which include the trading of of commodities, Bitcoins, equities, ETFs and indices among other instruments. The reliability of the forex broker has seen the company expand to serving more than 200,000 clients around the world while surpassing the $60 billion mark in transactional value. The strong financial backing and a focus on clients has ensured that the firm can offer a wide range of services to its clients on various trading platforms. The company also has a great multilingual support staff who are always available 24/5 to attend to the needs of its clients.
eToro is a large FX brokerage firm that was founded with the goal of providing a user-friendly trading platform that would help traders of all experience. It is famed for its social trading platform which allows users to interact and learn from each other under its copytrading feature. It also has an openbook trading platform which allows investors to trade in a number of financial instruments which include equities, commodities, currency pairs and market indices. eToro is mainly regulated by two bodies, which include the Financial Conduct Authority and the Cyprus Securities Exchange Commission. See the list of FCA forex brokers and CySEC brokers list. Since the company has been in operation from more than 10 years, it has gained a great reputation as a reliable FX broker that its clients from India can also count on.