RBI/2010-11/472
A.P. (DIR Series) Circular No. 53
April 07, 2011
To
All Authorised Dealer - Category I banks
Madam / Sir,
Overseas forex trading through electronic / internet trading portals
Attention of the Authorised Dealer Category - I (AD Category - I) banks is
invited to Regulation 4 of the Foreign Exchange Management (Foreign Exchange
Derivative Contracts) Regulations, 2000
(Notification No. FEMA 25/2000-RB dated
May 3, 2000), as amended from time to time, in terms of which a person resident
in India may enter into a foreign exchange derivative contract in accordance
with the provisions contained in Schedule I to hedge an exposure to risk in
respect of a transaction permissible under the Foreign Exchange Management Act
(FEMA), 1999 or rules or regulations or directions or orders made or issued thereunder. Further, in terms of Regulation 5 A, ibid, a person resident in
India may enter into currency futures or currency options on a stock exchange
recognized under section 4 of the Securities Contract (Regulation) Act, 1956, to
hedge an exposure to risk or otherwise, subject to such terms and conditions as
may be set forth in the directions issued by the Reserve Bank of India from time
to time. In terms of
A.P. (DIR Series) Circular No. 32 dated December 28, 2010,
a derivative transaction is only permitted based on the presence of an
underlying price risk exposure for which purchase and/or sale of foreign
exchange is permitted under FEMA, 1999. Further, attention of the AD Category –
I banks is invited to
A.P. (Dir Series) Circular No. 51 dated May 8, 2007 in
terms of which remittances under the Liberalised Remittance Scheme are allowed
only in respect of permissible capital or current account transactions or a
combination of both. All other transactions, which are otherwise not permissible
under FEMA, 1999, including the transactions in the nature of remittance for
margins or margin calls to overseas exchanges / overseas counterparty, are not
allowed under the Scheme.
- It has been observed that overseas foreign exchange trading has been
introduced on a number of internet /electronic trading portals luring the
residents with offers of guaranteed high returns based on such forex trading.
The advertisements by these internet / online portals exhort people to trade in
forex by way of paying the initial investment amount in Indian Rupees. Some
companies have reportedly engaged agents who personally contact people to
undertake forex trading/ investment schemes and entice them with promises of
disproportionate / exorbitant returns. Most of the forex trading through these
portals are done on a margining basis with huge leverage or on an investment
basis, where the returns are based on forex trading. The public is being asked
to make the margin payments for such online forex trading transactions through
credit cards / deposits in various accounts maintained with banks in India. It
is also observed that accounts are being opened in the name of individuals or
proprietary concerns at different bank branches for collecting the margin money,
investment money, etc.
- AD Category - I banks are, therefore, advised to exercise due caution and be
extra vigilant in respect of the above transactions. It is clarified that any
person resident in India collecting and effecting / remitting such payments
directly /indirectly outside India would make himself/ herself liable to be
proceeded against with for contravention of FEMA, 1999 besides being liable for
violation of regulations relating to Know Your Customer (KYC) norms / Anti Money
Laundering (AML) standards.
- AD Category - I banks may bring the contents of this circular to the notice of
their constituents and customers concerned. Authorised Dealers may also give
wide publicity to the instructions contained in the A.P. (DIR Series) Circulars
referred to above and the Press Release issued by the Reserve Bank dated
February 21, 2011 (copy enclosed). The instructions contained in this circular
may also be brought to the attention of the card issuing companies who may also
be advised to remain alert against permitting payments for such unauthorised
transactions.
- The directions contained in this circular have been issued under sections
10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(Dr. Sujatha Elizabeth Prasad)
Chief General Manager