The Reserve Bank of India (RBI) has set the ball rolling to ease the pain of retail investors wanting to deal in foreign exchange (forex) and government securities (G-secs). The central bank has proposed to provide retail clients direct access to the inter-bank electronic trading platform, the mechanism used for order-matching.
“Such a mechanism will provide transparency while enhancing competition and lead to better pricing for customers. Direct execution of orders by the customer would bring down the risk that banks face in warehousing transactions until they can be aggregated to a market lot,” the central bank said in a statement.
The banking sector regulator said banks would be allowed to charge their customers a “pre-agreed flat fee” towards administrative expenses.
Market players said the move will address the issue of fair and transparent pricing faced by retail and other small clients such as micro, small and medium enterprises (MSMEs) in the foreign exchange market.
It will also help bring down costs that retail and MSMEs incur while dealing in the forex market.
RBI said the The Clearing Corporation of India Limited (CCIL) will develop access to its platform “FX-Clear” through an internet-based application. FX-Clear is a forex dealing system which allows order-matching and negotiation mode among participants. It covers inter-bank US dollar-Indian rupee (USD-INR) spot and swap transactions in cross currencies such as euro-dollar and dollar-yen. A more detailed discussion paper on various proposals in this regard will be floated at the end of this month, RBI said.
G-sec buying by retail investors
To implement the Union Budget 2016-17 proposal of facilitating retail participation in the primary and secondary G-sec markets
through stock exchanges, the RBI said it will issue final guidelines in this regard in a few weeks.
Market regulator Securities and Exchange Board of India (Sebi) and the RBI are readying a framework that will allow stock exchanges such as the National Stock Exchange (NSE) and BSE to act as aggregators for retail bids. Currently, only select banks and primary dealers (PDs) can act as aggregators of retail bids for G-sec auctions.
RBI said specified stock exchanges “will be permitted to act as aggregators/facilitators for retail investor bids in the non-competitive segment for the auction of dated securities and treasury bills of the government of India.”
The move, the RBI said, is part of the strategy to diversify the investor base of the G-sec market. Some of the recent initiatives taken by the RBI and the government in this regard include introduction of odd lots in the secondary market, improvement in settlement mechanism, retailing of G-secs by PDs and introduction of non-competitive bidding in primary auctions.