Mint Primer: Decoding RBI’s alert on illegal forex platforms

livemint.com:

Mint explains: These are platforms where foreign exchange transactions can take place. They are used by corporates and traders to hedge their foreign currency risks. These transactions can be on over-the-counter (OTC) spot or derivatives platforms authorized by the RBI.

The other avenue is through RBI-authorized exchange traded currency derivate segments like the BSE, NSE and the Metropolitan Stock Exchange of India. The OTC or inter-bank transactions are undertaken over electronic trading platforms (ETP) such as CCIL’s FX CLEAR or Reuters or Bloomberg platforms. They can also be undertaken through authorized brokers.

Forex trading in India has to be done through a registered Indian forex broker, on ETPs authorised by the RBI or on recognized stock exchanges. According to the central bank, forex trading in India is permissible only in four currency pairs—dollar-rupee, euro-rupee, British pound-rupee and Japanese yen-rupee. These pairs have the Indian rupee (INR) as the base currency.

Trading in any other currency pair is illegal and can attract penalties under the Foreign Exchange Management Act (FEMA). Indian citizens are also not allowed to trade foreign currencies overseas, either directly or indirectly. In November last year, RBI came out with an alert list of 75 entities, which are not authorized to deal in forex or operate ETP for forex transactions.