A trading account is opened with a broking company to invest in shares listed on NSE or BSE and a similar process is required to open a trading account with an Indian broking that has a partnership with an international broking house to invest in shares of some foreign companies listed on the stock exchanges of their respective countries.
How to open a trading account to invest in International Capital Markets?
An Indian stock broker enters into a tie-up with a foreign broking partner who has the license to act as an intermediary and executes the trades on behalf of the client in the foreign markets.
The Indian stock broker will act as an introducing intermediary between the client and the foreign broking house. The Indian stock broker will also help the client in getting the account opened and completing the formalities of Know Your Customer (KYC) applicable for that country.
Documents to be filled in and required for the Process:-
- Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).
- Account Opening Application
- Passport photocopy – ID proof
- ATM/Credit card with Name – 2nd ID proof
- Mailing address proof
- BROKERAGE Company Relevant – RWS (Risk Warning Statement) ACKNOWLEDGEMENT & CAR (Customer Account Review) – DECLARATION
- Agreement For Broker Securities Services – Agreement
After the Bank and the trading accounts are opened the client needs to fill in some forms for the Liberalized Remittance Scheme.
- LRS –Declaration Form
- LRS Annexure –
- Form A2 (For payments other than imports and remittances covering intermediary trade)
- Application for Fund Transfer
The client just needs to fill an application form and provide an identity proof such as passport or PAN card and residential address proof such as Voters ID card or latest bank statement as the documents required to open an account. The client must not be a US resident ( IRS of the US has many interpretations of ‘US resident’, which includes even 1 month continuous stay in the US in the past 12 months ) to open this account.
Once the necessary details are registered, the client will be provided the bank account details of the foreign broker to which funds are to be transferred. The client will also get the contact details of the account executive who will take care of account in case the client requires any kind of assistance.
Funds Transfer – Pay-In/Pay-Out Process
As per the remittance norms of the Reserve Bank of India (RBI), an Indian citizen can remit a maximum of USD 2, 50,000 in a financial year, from any of the authorised banks in India, including for investments in international capital markets.
It takes around 24 to 48 hours to remit money from the bank account to the trading account with the foreign broker and around 48 to 72 hours from the trading account to the bank account.
The client may remit funds in one of the many global currencies from his bank account to his trading account but he/she needs to decide the base currency in which he/she wants to settle the transactions. So, if the client sets USD as the base currency in the account, then all stock exchanges which accept payments in USD will settle the transactions in USD automatically.
Once the account is opened and funds are transferred, the client is provided a client Login ID and password to have an immediate access to the foreign broker’s trading platform to buy and sell shares of the listed foreign companies. All dealings like trading, delivery of shares/funds is done directly with the foreign broker without any involvement of the Indian stock broker.
Unlike here in the domestic markets, where the bought shares get transferred into the demat account in T+2 days, in the foreign markets the shares remain in a pool account with the broker’s custodian but start reflecting in the client’s trading account immediately after buying.
Margin Trading and Short Selling is not allowed with a foreign broker. The client would be able to buy shares only when there is sufficient cash in his/her account and sell shares only when the client already holds them.
The client can have the access to all the transactions, account history and ledger balance on the trading platform. The clients also get the contract notes for the executed trades in his/her mailbox.