Legal regulation of Forex in India

• Foreign Exchange Management Act, 1999.

• Securities and Exchange Board of India Act, 1992

• Companies Act, 1956.

• Prevention of Money Laundering Act, 2002

Currencies trading with Forex in India conducted only through national currency - USDINR JPYINR, GBPINR, EURINR.

Futures, warrants and binary options are referred to derivative trading. Activities that connected to obtaining of the National currency and transfer of that currency into Currency pair also requires additional licenses. That’s why for Forex Company, which deal with futures or binary options trading on Currency pair, it is necessary to obtain License from National Bank of India according to Foreign Exchange Management Act, 1999 and Certificate of National Stock Exchange (NSE) according to Securities Laws (Amendment) Act, 1995.

NSE

Corporations, Companies or Institutions or subsidiaries of such Corporations, Companies or Institutions set up for providing financial services;

Requirements:

• Company should be registered in India (Article 12 Companies Act, 1956);

• Correspond to norms of Article 2 of the Securities and Exchange Board of India Act, 1992 - Company should start activities only after obtaining of the Certificate, to determine certified agent, not to apply assets from investors without Stock Market confirmation;

• To determine all managers and beneficial owners.

Statutory Found

Minimal assets (those assets will be blocked during functioning of the Certificate)

Circular No. CIR/MRD/DRMNP/36/2012 dated December 19, 2012 for derivative trading * (futures \ Binary Options) -

That minimal assets are blocked during functioning of the Certificate.

Staff: 2 Directors (one of them resident), 21 years old, with education HSC (Bachelor) and 2 years experience in sphere of stock market.

Directors of the Company shouldn’t be excepted from members of the stock market. And they should be clear before the Law - Securities Contracts (Regulation Rules, 1957).

One of the Employees should be certified by the Securities Market (Basic) Module or Compliance Officers (Brokers) Module:

• Capital Market (Dealers) Module;

• Derivatives Market (Dealers) Module;

• National Institute of Securities Markets (NISM) Series I – Currency;

• Derivatives Certification Examination.

Controller (person of MRD who is checking compliance with national rules of trade and provide annual reports in case if there were no violations).

AML Officer. Requirements didn’t determined by the Law.

Regulator reserves the right to accept or refuse an issue of a certificate for any application or supplement to the application concerning obtaining of the certificate, without giving further explanations. Also, regulator can refuse any transaction if there are possibility that the company has committed a violation of the terms of trade.

Time frames: Didn’t determined that by the Law

License from National Bank of India

There are three category of licensee for regulation of currency reserves of National Bank of India, which acceptable on Inter-bank in India:

• Dealers Category I (AD) bank (National Banks);

• Authorized Dealers Category-II (Regional and Public Banks);

• Full Fledged Money Changers - (Other members = maximum deposit per client 10000 USD).

Company: registered in India

Physical presence - real-life office

Employees - obtaining of non Criminal offense Record.

Audit - 6 month external audit, and monthly reports concerning transactions

KYC/AML/CFT - monthly reports.

Franchising - to make the procedure easier you can obtain Franchise, where franchiser ensured for a new business entity. Requirements to the Company didn’t applicable, but it will save time of license obtaining from 18 moth to 6 month, if franchise involved.

Trading Instruments - the most popular methods of payment are PayPal, Srill, Netteler, which work with Banks of India. Central Bank of India is obliged to check payments of Visa and MasterCard, and Bank will refuse to complete transaction in case of violations of legal norms of India.

If payment include names: Forex, CDF, Investments, Binary Options in India such payments should be refused by Indian Banks. If references of the receiver is Forex Company, Bank also obliged to stop such transaction. In practice, such money transactions can’t be completely checked

The only issue is refund of your money through Payment systems from Forex offshore, because transactions didn’t come up into cards of Indian Banks due to checks of Central Bank.

Conclusion: Often Companies provide legal Forex services (Binary Options) through Franchise Full Fledged Money Changers, NSE or License MCX-SX for trading. All trades are conducted on national markets through national currency, although licensee can receive other currencies.

Currency output for trading is prohibited by Central Indian Bank, to save external reserve.

Forex trading without license in India is strictly prohibited by Central Bank. This is criminal offense for Forex Company and for Client. Time of issue of the necessary documents didn’t determined, because regulator have to be sure concerning observance of protective mechanisms of internal reserves and currency.

Monetary policy of the protection of internal resources is designed more likely for defensive purposes than for investment activities. All these factors led to the fact that the Forex market, binary options and futures trading are not for international companies. This is environment, where the penalty for infringement can be charged not from the trader but from the Client of the trader.

Banks 

Ready to open in case of existence of Franchise. Licensee can be accepted directly only after strict compliance procedure.

Merchant accounts

There are many different payment systems. Netteler and Skrill are leaders among them, because they reduce processing time in case if all documents are ready.

Audit is complicated by the fact that the system of Audit mainly used bank records. Data from Merchant accounts are rarely accepted (Bank requires an additional contracts with customers concerning all payments, regardless of whether the work was on public offer or open contracts).

You may find detailed information concerning that article during consultation with lawyers of Law&Trust International.