FX Clear allows users to exchange currency with ease. It aims to provide a fair platform and transparent pricing for customers. This issue of opaque pricing was raised in various public interactions of the central bank. So, the Central Bank finally decided to come up with a viable solution.
Which market segments will from benefit from Fx Retail platform and how?
The platform creates a market infrastructure, ensuring transparent and fair pricing for users of the foreign exchange market. It will be highly beneficial for SMEs, individuals, and importers & exporters. By the unification of the existing fragmented market, it will ensure fair pricing, regardless of the order size, primarily benefiting the users with smaller requirements.
As per sources, the orders placed by customers will be bunched into marketable lots of USD 5 million and above. The CCIL platform can directly trade the same in the inter-bank market. Hence, retail customers can now avail the superfine inter-bank rates. The move aims to reduce the high spread and other charges being levied by banks on foreign exchange transactions of a retail and MSME customer.
All transactions carried out in FX Clear will be at the inter-bank spot rate and spread charged by the bank will be visible. Currently, importers-exporters find it challenging to know the exact spread charged by the bank on each transaction. Once the MSME knows the spread charged, he/ she can negotiate and make it fair.
The platform will reduce risks for the bank to warehouse small transactions. The portal will be highly useful as the banks will give a portal to its customers and ensure transparency in the margin and spot rates. It has certain limitations and is not helpful if you wish to make a forward booking. Also, it has a per-day transaction amount limit.
Limitations of the new retail FX platform
Ordering is allowed up to 4:30 PM. The import transactions of value date cash will be settled by 1:30 PM, which is a slight limitation of the platform.
Only CTS (Cash-Spot-Tomorrow) deals are allowed. No forward booking is currently permitted
Corporate have to depend on the bank to register them on CCIL. Banks may have to set up settlement limits for clients to handle any settlement risk arising out of transaction discrepancy. For corporate having a credit facility with a bank, it may be easy to carve out a small limit as settlement limit. However, for corporate with no credit limits, banks would have to do a credit assessment to sanction limit or take any liquid collateral like a fixed deposit to sanction the limit. Thought, such limit amount could be tiny, and our estimate suggests a range of 0.5-1.5%.
For now only USDINR is allowed and currency pairs like EURINR, GBPINR, JPYINR are not allowed. Therefore corporates with exposure to non USD currency would not be able to use the platform
Daily transactions and charges
There is no cap on the buy or sell transactions per customer per day. The total transactions for a particular customer will be subject to the limit assigned by the individual’s bank.
As per the Reserve Bank of India, CCIL shall not levy any charges on transactions below 5 million.
What are the expected features of this new FX Retail platform?
The FX retail platform will allow a user to access it for purchase or selling of US dollar against the rupee. This can be done for delivery on the same day or ‘cash basis,’ basis next day or tomorrow and on a spot basis, which is two days post the transaction. Forward transactions could be expected in the future.
The platform will display FX-CLEAR inter-bank spot rates for the ease of the customers.
How to access the forex retail trading platform?
Any customer, using the services of any Indian bank, can access the platform. All it need to do is visit https://www.fxretail.co.in.
The customer registration process has commenced on July 1, 2019. Transactions will be allowed on the platform following August 5, 2019. As per a notification published by CCIL on its website, customers must get the registration done to avail the benefits of the FX-Retail platform. The Clearing Corporation of India has created a separate registration portal to fulfill the purpose.
As per instructions given on the CCIL website, the customer must provide their bank while registering. After successful registration on the portal, details shall be forwarded to the bank. This will clear bank approval and customer verification. Post-approval, the user credentials will be shared with the customer. These credentials will include the login ID and password to access the platform.
Edugains could help you to reduce bank charges and spread on foreign exchange transactions. It helps MSMEs and other corporates with managing intraday fluctuations and develop a sound hedging strategy.
Edugains is a niche advisory and outsourcing company in the domain of banking and foreign exchange risk management. We started operations in 2011, and since then, we have been helping SME corporate across India to reduce their overall finance cost; raise low-cost borrowings in Rupees and foreign currency; manage the currency risk on import-export transactions and advise on FEMA and RBI compliance. Our expertise is to reduce overall finance cost without change or existing bank.
Edugains, as a part of its advisory services, helps businesses with the following:
Export-import rate improvement
FX advisory and hedging management
Reduce the overall expense of interest and other financial costs
Interest reduction by using a better product, minimizing hidden charges, etc. (preferably without change of bank)