ELECTRONIC TRADING PLATFORMS (ETPS)

The Reserve Bank of India's (RBI) Governor recently raised concerns about illegal forex trading platforms and urged banks to monitor such activities.

Definition of Electronic Trading Platforms:

1. Electronic Trading Platforms (ETPs) are virtual marketplaces, other than recognized stock exchanges, where transactions in securities, money market instruments, foreign exchange instruments, derivatives, and other eligible instruments are conducted.
2. Under The Electronic Trading Platforms (Reserve Bank) Directions, 2018, no entity in India is permitted to operate an ETP without obtaining prior authorization from the RBI.

In 2022, the RBI noticed misleading advertisements of unauthorized ETPs providing forex trading facilities to Indian residents, including social media platforms, search engines, over the top (OTT) platforms, gaming apps and others. RBI had said that there are reports of agents being involved in such ETPs who personally approach innocent people to initiate forex trading/investment schemes and promise them huge returns. It said there were also reports of frauds committed by unauthorized ETPs/portals and many residents losing money through such trading/schemes. RBI cautioned the public not to conduct foreign exchange transactions on unauthorized ETPs or send/deposit funds for such unauthorized transactions.

3. Resident persons who operate ETPs without RBI authorization, collect and effect/remit payments directly or indirectly outside India, will face legal consequences under the Foreign Exchange Management Act, 1999, and the Prevention of Money Laundering Act, 2002.
4. ETPs authorized by the RBI can only facilitate transactions in instruments approved by the RBI.

Criteria for Authorization of ETPs:

1. The entity must be a company incorporated in India.
2. An entity seeking ETP operator authorization must maintain a minimum net worth of Rs. 5 crores and continuously comply with this requirement.
3. Existing ETP operators with a net worth below the prescribed requirement must achieve the minimum net worth of Rs. 5 crores within one year from the date of RBI authorization.
4. Banks seeking ETP operator authorization must allocate a minimum capital of Rs. 5 crores for this purpose.

Q1: What Is Forex (FX)?

1. Forex (FX) is short for foreign exchange, which is the global market for exchanging one currency for another.
2. The forex market is the world's largest and most liquid asset market, with trillions of dollars changing hands every day. It's open 24 hours a day, five days a week, except for holidays.
3. In the forex market, currencies are traded as exchange rate pairs, such as USD/CAD, EUR/USD, or USD/JPY.
4. The conversion rates for almost all currencies are constantly floating as they are driven by the market forces of supply and demand.
5. The most traded currencies in the world are the United States dollar, Euro, Japanese yen, British pound, and Australian dollar.

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