RBI proposes forex platform for retail participants

The RBI today proposed a scheme to encourage transparent and fair pricing in retail forex market by developing a foreign exchange platform for retail participants along the lines of the FX-Clear platform of Clearing Corporation of India Limited (CCIL).
As per the discussion paper floated in this regard, the retail market will have the same market hours as the interbank market (09:00 to 17:00 hrs).
The minimum order size would be USD 1,000 and thereafter in multiples of USD 500. The maximum order size would be USD 500,000.
The foreign exchange market in India may be broadly divided into the interbank segment and the retail segment.

The participants in the interbank segment are banks and transactions in this segment are conducted through trading platforms like FXT-D2 and FX-Clear.
Retail Customers with a need to buy/sell forex, currently do so over the phone with a bank. 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.

"CCIL operates an interbank USD/INR spot trading platform named FX-CLEAR. They would develop an electronic spot trading platform for retail customers modelled on their existing interbank spot trading platform," said the paper, on which the RBI has sought comments till January 1, 2018.

Retail customer would be provided access (through an internet based application) to an electronic trading platform where bid/offers from customers and banks can be matched anonymously and automatically.
"This is likely to provide transparency while enhancing competition leading to better pricing for all types of customers, without differentiating them on the basis of order size," the paper said.
As per the paper, direct execution by the customer is likely to bring down the cost of transactions as there is no market risk to the customer's bank apart from settling the inter-bank trade through the CCIL settlement system.
"Banks may charge their customers a fee towards processing expenses. Banks will be required to publicly declare such fees," it said.

As per the proposal, each matched trade of the customer would result in two transactions -- one between the customer and its bank and another between the customer's bank and the counterparty bank except in cases where the customer orders are executed between the customer and customer's bank.
The interbank deal will be settled as per the current CCIL settlement process while the customer deal will be settled bilaterally between the bank and customer, the paper said, addding "no change in the existing settlement system is envisaged".
Currently, banks are free to determine their own charges on various types of forex transactions, subject to RBI's guidelines that banks should ensure that the charges are reasonable and are not out of line with the average cost of providing these services.