Forex trading can be defined as the buying, selling, and exchanging of currencies from different countries hoping that a fluctuation in the values will generate profits.
In forex trading, you speculate on what direction a certain currency will travel. The transaction goes from one country to another and involves as many currencies as you want to speculate on, from Euro (€) Pounds (¤) US Dollars ($) Yen (¥) Rupees (₹).
Forex trading in the Philippines is a booming enterprise. One out of five people in the Philippines is an active international trader in the foreign exchange market (also known as the forex market). With just a few clicks on their computers or smartphones, an average Filipino could earn huge profits from investing in stocks and other financial instruments via this popular global market. The forex market started operating around 1973 and has since grown rapidly to over $5 trillion US dollar value annually.
The Securities and Exchange Commission (SEC) regulates financial markets in the Philippines. The body is also authorized to regulate and form securities laws, for example, insider trading, misuse of interior information, and market frauds, among others, to ensure the security of investors.
This article aims to help investors understand the role of the Philippine Securities and Exchange Commission (SEC) in regulating forex trading. So let’s dive in once and for all.
Overview of Forex Trading in the Philippines
Since its introduction in 1994, forex trading has increased in the Philippines. Currently, several foreign exchange institutions and brokers in the country offer forex services and a dedicated market for trading and exchanging foreign currency called Pasapao. However, due to strict regulations by Bangko Sentral ng Pilipinas, only about 2% of Filipinos can trade in forex markets. The new forex law aims to change that by allowing Filipinos to use electronic banking facilities and open more accounts with registered brokers. Taking advantage of these opportunities, many young people invested in forex trading became instant millionaires, and this phenomenon is still gaining ground.
Forex trading is among the Philippines’ most coveted and popular investment forms. It is because forex trading does not require people to work hard like an Average Joe, but it requires only basic analytical skills of guessing the best time to buy and sell a currency, and it is easy to gain profits. This is why it is grabbing the attention of most Filipinos, who seek an alternative to speculative investments like real estate. According to several reliable reports, more than 70% of all transactions in the country are made through forex trading. In short, forex trading is on the cusp of popularity in the Filipino market.
The Philippines has an estimated Forex market of about $15 trillion. It is similar to the country’s gross domestic product (GDP) and nearly 15 times the GDP of Singapore. The demand for forex trading has increased because it’s financially advantageous. The transaction charges are low; the margins are much higher than in any other market, increasing a broker’s profit. This change in ease of doing business has made it more accessible to most Filipino investors.
The highlight of forex trading is that it not only facilitates people to earn money faster but also helps a country’s economy to grow at an accelerated rate.
Risks Associated with Forex Trading
Forex trading is cost-effective but risky. Some risks are due to its monetary nature, such as market volatility, and it can involve leverage. Other risks may come from a company’s involvement in the market, such as fraud and manipulation. Should you want to trade forex, many other types of risk are also associated with trading. These include chances of losing money for not understanding how a strategy works or incurring losses due to predictive analysis failure. Some other key risks include market volatility, spread-related risks, etc. When trading forex, it is a good idea to learn about such risks to assess whether they are acceptable and utilize features like forex signals provided by many platforms to help minimize your risk.
Regulatory Framework for Forex Trading in the Philippines
The Securities Exchange Commission (SEC) is the principal regulatory body responsible for maintaining fair securities trading in the Philippines. It is an agency run by the government under the managerial oversight of the Department of Justice, which was set up by Executive Order No. 21, dated January 17, 1987. Many reforms have been enacted over the past few years to reinforce and fine-tune the SEC’s mandate. These include amendments to existing laws and the creation of new legislation such as Republic Act 10142 or The Cybercrime Prevention Act of 2012 and R.
The SEC was formed to regulate public securities trading and to protect the investors trading forex on a legit trading platform in Philippines. The SEC has the jurisdiction to investigate fraudulent and misleading practices in the Philippine capital market. It is also mandated to ensure that public companies comply with the requirements of the SEC.
Forex brokers operating in the Philippines must follow and meet the regulations and requirements of forex trading. The requirements mainly involve supervising and controlling brokers’ activities and protecting clients involved in trading forex. There are also certain criteria that any applicant should meet to receive a license to operate.
As a forex trader, the requirement of having a license is among several regulations laid down and deployed by the Securities and Exchange Commission (SEC), which takes care of these types of businesses in the Philippines. Some of the key regulations set by the SEC impinging on brokers are those concerning registration, oversight, and securities transactions for their clients. From start to finish, these regulatory bodies conduct background checks on applicants for licensing purposes, among others. The SEC also has the power to issue or cancel a broker’s license and impose a fine in case of violation of rules.
The regulations for brokers are quite detailed and complex. The Securities Regulation Code (SRC) is the most important law for forex trading in the Philippines, and it requires forex brokers to be licensed by the SEC before putting out a bid or offer to sell or buy forex. To do this, an applicant must submit certain documents establishing licensure eligibility, among other requirements. Certain considerations surround registration, such as investor protection, corporation stock control, and records verification by the SEC.
Penalties and Consequences for Non-Compliance with Regulations
As mandated by the Philippine Securities and Exchange Commission or PSEC in its document, all Forex traders must register with it and meet the least capital requirement of $100,000 or P5 million based on their business type. Traders must meet the various licensing requisites and occasionally cede reports to the regulator. Any forex dealers found violating the provision are subject to go through civil penalties, incarceration, or even both in certain instances.
Trading forex without a license can result in dealers paying a fine of up to $5,000 (or P200,000) or being jailed for up to a year, or both in certain instances.
The document also set out guidelines for mutual settlements and payments, which the PSEC said will “help strengthen the stability and security of the financial system.” The guidelines were released after two years of stakeholder discussions, including remittance companies and financial institutions.
Forex dealers who do not abide by the regulations are subject to paying fines even without a court order. Such noncompliance may also result in a forex dealer’s license being revoked by the PSEC.
SEC’s Efforts in Regulating Forex Trading in the Philippines
Forex trading has become hugely popular in the country because more people are investing and looking for better yields on their money. But as it turns out, many brokers in the country operating illegally and fraudulently take advantage of inexperienced traders by promising them unrealistic returns and luring them into so-called “easy money schemes.
The Philippine SEC has issued a fake broker list to protect investors from getting victimized. It is launched as part of the agency’s efforts to educate investors about the common practices of fraudulent overseas brokers who solicit customers and accept their investment funds, only to shut down afterward.
Anyone can report the scam brokers and file a complaint with the SEC by visiting their website at https://www.sec.gov/investor/alerts. If a forex broker is reported, it will be immediately added to the existing list, which already contains 90 companies operating illegally in this industry.
The public is informed that a broker on the fake broker list will not be able to obtain a license from the SEC if the company decides to go legit. The listing also means they are not recognized as legitimate brokers, and investors should avoid transacting with them.
The SEC will continuously update the list in line with efforts to identify other fraudulent brokers which have not been reported yet. The listing will remain posted on their website for public awareness and easy access.
Investors should note that online forex trading is a fairly new trend in the country. Still, scam brokers are already taking advantage of inexperienced traders by promising them unrealistic returns and luring them into expensive “easy money schemes.”
With recent latest updates to its Investment Company Act, the SEC is committed to protecting investors in how they trade. Even then, it seems that certain changes still need to be made in both regulations and the imposition of these regulations.
Considering these regulations, it seems that certain loopholes in the law can be exploited by certain advisers and funds interested in making the most out of foreign investors without conforming to the hard and fast needs related to the disclosure in place. Penalties inflicted on non-compliant individuals and organizations are generally insubstantial deterrents, ranging from fines up to P1 million ($20,000). Additionally, an adviser is likely to be penalized once every five years.
Like other trade goods, the SEC has to resolve the issue of market manipulation. Factoring in market manipulation specifically, it is worth noting that the forex market’s volume and liquidity have depreciated over the past few years. It can critically affect the rates of stocks, specifically when key closed-end funds do not live up to the mark in their due diligence.
Steps should be taken to enhance investor protection by establishing a clearer link between investors and advisers through regulation. For an adviser to obtain registration from the SEC, they must submit a disclosure form based on certain guidelines. These regulations are aimed at reducing market abuse.
Identification of the loopholes and weaknesses in the current regulations and how the SEC plans to address them
The current laws and regulations implemented by the SEC were created a few years back, specifically at the time when the economy of the Philippines was growing vigorously. The regulatory body aimed to protect investors and ensure companies listed on the Philippine stock exchange operate in an environment that fuels growth. However, recent events have unveiled certain inconsistencies in the SEC’s regulatory framework, which facilitates illegal activities to come to pass.
The Philippine Securities and Exchange Commission (SEC) is now ready to lay down and implement new regulations to deal with the loopholes and weaknesses in the existing set of conventions, which has been hampering the development of the forex market. According to the SEC, their new initiatives will enhance general capital market growth, including competence and transparency.
The importance of new regulations will also be noteworthy, as they are expected to encourage investors’ confidence in stocks offered by companies listed on national exchange platforms. Meanwhile, it also assumes all responsibilities for ensuring all securities transactions are carried out by legit businesses, enabling them to comply with all legal requirements.
The SEC must regulate and license foreign-exchange brokers and dealers to promote fair trading practices, prevent fraud, maintain orderly markets, and protect investors.
In summary, the SEC regulates Forex trading in the Philippines. These regulations fall under its mandate to promote fair trading practices between brokers or dealers of foreign exchange. It also ensures that these same traders comply with rules on financial instruments and trade reports. In this way, it attempts to protect investors from potential fraud while working towards an orderly market where they can purchase these same instruments.
We hope that our article has been instrumental in giving details on the role of the Philippine Securities and Exchange Commission or PSEC in regulating Forex trading. Whether you are interested in trading forex on margin is up to you, the readers. So use your discretion and reach a decision once and for all. Nerves of steel, discipline, and a healthy skepticism are all essential traits for a successful trader.