August 16, 2020

FOREX trading in the Philippines: Is it legal?

By: Kathia Kierstin Chanyee
Globalization has great impact in the community, locally and internationally. Due to its rapid increase worldwide, it paved way for the innovation of the market system. Among those is the introduction of Foreign Exchange (Forex) in the international market arena. Forex, also known as FX, is a generic term for the worldwide institutions that exists to exchange or trade currencies.
Nowadays, Forex has become the world’s largest and influential financial market, with an estimate 1 daily turnover of $3.2 trillion . It is a market that has great appeal to a financial trader because of its volume which guarantees liquidity. High liquidity means that a trader can trade whatever currencies he always feels like, since there will always be someone to buy and sell any currency he wants.

Furthermore, placing the internet into the equation, forex market is literally at your fingertips. Most brokers offer online trading facilities which enable you to trade simply by clicking a button, instead of the traditional phone call. The internet has really revolutionized the industry, making the retail section of the market more dominant that ever.

While commercial entities have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playing field. The foreign exchange market initially worked under the central banks and the governmental institutions but later on it accommodated the various institutions.
At present, it also includes advancements of technology, with use of the internet as another playing field. The size of the Forex market now dwarfs any other investment market. The foreign exchange market is the largest financial market in the world. Approximately $5 trillion are traded daily in the foreign exchange market . It can be said easily that Forex market is a lucrative opportunity for the modern-day practical investor.
From its humble beginnings as a medium of exchange to today’s electronic transactions of billions of dollars in milliseconds, the world of currency trading has changed a lot over the centuries, but the people’s need for trade and exchange has stayed the same.
The Securities and Exchange Commission (SEC) in the Philippines has taken an unusually adversarial stand against forex trading. The SEC had issued an advisory dated October 10, 2016 stating that forex trading is illegal in order to discourage fraud and debilitating losses among private individuals.
Section 11 of the Securities Regulation Code further provides that “no person shall offer, sell or enter into commodity futures contract except in accordance with rules and regulations and orders of the Commission may prescribe in the public interest.”
Potential investors should also take the cue from the ruling laid down in Onapal v. Court of Appeals (G.R. No. 90707, February 3, 1993) where the Supreme Court stated in this wise: “. . . The payments made under said contract were payments of difference in prices arising out of the rise or fall in the market price above or below the contract price thus making it purely gambling and declared null and void by law”.
The issuance of this advisory was due to a wave of complaints of people losing money in the forex market that involved entities acting as brokers or agents without Philippine regulatory licenses.
As it is, no domestic forex brokers currently do business in the country due to an unfavorable local regulatory environment, though established forex traders still use U.S. dollar-denominated bank accounts and make deposits through PayPal, Skrill or other online payment services.
While trading of Forex is not allowed, the buying and selling of foreign currencies is permitted albeit regulated.
The Manual of Regulations on Foreign Exchange Transactions is a consolidation of all regulations governing foreign exchange transactions. This is an enhanced and complete version of Circular No. 1389, as amended, as it incorporates all amendments made since 1993 and consolidates all regulations on foreign exchange and related transactions.
The manual provides that all foreign exchange transactions, including those of authorized agent banks (AABs)/AAB-subsidiary/affiliate forex corporations (AAB-forex corps), must be compliant with applicable laws, rules and regulations, including the “Know Your Customer” policy.
The sale of foreign exchange may be freely made:
(a) between and among AABs;
(b) by AAB-forex corps to AABs; and
(c) between and among individuals/entities other than AABs/AAB-forex corps: Provided, that the sale of foreign exchange by non-bank BSP-supervised entities (NBBSEs), including qualified entities operating as foreign exchange dealers/money changers (FXDs/MCs) and remittance agents (RAs) that are neither AABs nor AAB-forex corps, shall be governed by other applicable BSP regulations.
Pursuant to Monetary Board Resolution No. 75 dated 20 January 2005, foreign exchange dealers/money changers and remittance agents are also required to register with the BSP and comply with applicable Anti-Money Laundering Laws.
The authors/researchers are students of 3Manresa of the Ateneo de Davao University-College of Law. This paper was written as part of the requirements of Banking Laws under Atty. Raymund Christian S. Ong Abrantes, CPA.
Edited By:
Atty Raymund Christian Ong Abrantes, CPA
1Forex Trading: Spread Betting Currencies.
2Lien, K. (2018). Trading the Currency Market.