Since brokers like octaFx and other CFD providers openly advertise using various media channels why is RBI or SEBI not acting upon it.
Is it just these brokers are exploiting the loophole in the system. If not why is no one concerned on this and not raising a voice.
Although it cannot be truly answered why regulators do not react immediately to something in the regulatory grey zone. This after all, can only be known if you are one, at the highest level. But it is common knowledge that regulators are always aware of these bad eggs. The information reaches them very fast. Although they choose not to react as fast for many reasons.
1. They have to build a strong watertight case first : It may seem that regulators can fire from the hip and shoot down stuff whenever they want, but this is not the case. If they do so, the aggrieved party will go and file an injunction order in the court asking the court to decide whether what they are doing is legal or not. And if not legal, show us a statute that explicitly bars them from doing so.
If you don’t have a statute in place, proper provisions and precedents in place, it becomes really hard for the regulator to defend their actions, and they look bad in front of the public. This lowers their credibility for future shooting from the hip. You can be right and still be wrong in Law. This is a position regulators usually avoid. They actually keep making a file on you, and wait for you to actually do something bad, and then they strike hard and fast.
2. Regulators take a wait and see approach towards new innovation : All the trusted and popular products you see were once in the Legal greyzone. If you idea is bad and it has no audience and substance, it usually fizzles out by itself pretty quickly. Regulators have to do nothing in this case, but if your product has merit, it would be actually wise to let an industry grow around it first, wait other players to join in and make something of it, and then come and sit on this pie when its fully baked.
3. Regulators are busy with other projects : It might seem the almighty regulators have infinite resources and manpower, but they are almost always understaffed and spread thin. Regulators have a million things to take care of and hunting down smallfish is a lower priority project. Its time when it comes, comes in time.
But because of this we have seen many scenarios in which greyzoners take advantage of this situation.
Online Poker : Regulators failed to move quickly and present a strong case against Online Casinos, and failed to provide a strong case against online gambling. Court grew tired of this lazy prosecution and ruled in favour of these companies.
Dream 11 : Another variation of Gambling walking around as a game of skill. Once big players had entered fantasy sports and enough players played it, Court again ruled in favour of these companies.
Crypto Currency : Supreme court straight overruled RBI decision to blanket ban cryptos altogether without proper statute in place. Although Court here is a bit sympathetic towards the government and regulator, because its a big matter now, and RBI and SEBI have more expertise in currencies and assets and not courts. But allow crypto companies to become even bigger, and its userbase even bigger, and even with a statute which is upcoming and being stalled for years, it would be difficult to get rid of crypto altogether. It would be quite a legal battle then.
So yeah if you are an upcoming greyzone company, the best way to go, is become as big , as fast as possible and have a lot of competitor companies giving validity to the presence of your industry. And then hire an army of the best lawyers and go fight in Court. It works since the 2010s, wouldn’t have worked in 19XX. Times were different then, Hard handed regulation was in fashion.
Very nicely explained.
Since FX in spot market is not allowed. it allows people from india to take position with these brokers (again via CFD) so they should bring stringent laws in place.
Never trade with CFD Brokers.
Remember you are trading against broker whos is providing the quotes. There is delay between real exchange markets and brokers quotes. The bots do everything these days.
This is the oldest scam in trading markets. yet sebi and govt do nothing. probably regulators are paid by these CFD brokers to look the other way.
Watch The movie Sting staring robert redford and you will see how these brokers operate in a very similar manner.
That’s why are they offer gifts and other incentives to open account with them. The odds are 90/10 with them. unlike stock market where odds are 50/50.