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Draft Directions for Electronic Trading Platforms (ETPs)

Reserve Bank of India (RBI) has issued draft directions for Electronic Trading Platforms (ETPs).

What is Electronic Trading Platform (ETP)?

Electronic Trading Platform (ETP) shall mean any electronic system, other than a recognised stock exchange, on which transactions in eligible instruments are contracted.

What are Eligible Instruments?

Eligible Instruments shall mean securities, money market instruments, foreign exchange instruments, derivatives, or other instruments of like nature, as may be specified by RBI under section 45W of Chapter III-D of RBI Act, 1934.

To whom shall the directions be applicable?

  • The directions are issued to the entities operating ETPs on which transactions in eligible instruments are contracted.
  • The directions shall not apply to electronic systems operated by scheduled commercial banks and standalone primary dealers for transactions in eligible instruments wherein the bank or the primary dealer operating the electronic system is the sole quote / price provider and invariably a party to all transactions contracted on the system, subject to the conditions specified by RBI.
  • The direction shall apply to offshore ETPs only to the extent specified.

What are the conditions for operating an ETP?

  • No entity, resident or non-resident, shall operate an ETP without obtaining prior authorisation of, or having registered with, RBI.
  • In respect of eligible instruments, ETP operators authorised by / registered with RBI shall ensure that transactions only in instruments approved by RBI are contracted on their platform.
  • Existing ETPs requiring authorisation / registration under the directions shall make an application for authorisation / registration within 3 months from the date the directions. An operator of an existing ETP may continue to carry on the operations till disposal of its application by RBI granting or rejecting authorisation / registration.

What is the eligibility criteria for authorisation as ETPs?

An entity seeking authorisation as an ETP operator to commence or carry on ETP operation shall fulfil the following criteria –

  • The entity shall be a company incorporated in India.
  • The entity or its key managerial personnel shall have experience of at least 3 years in operating trading infrastructure in financial markets.
  • An entity shall maintain a minimum net-worth of ₹5 crore at all times.
  • The entity shall obtain and maintain robust technology infrastructure.
  • The entity shall ensure capability to disseminate trade information on a real-time basis or near real-time basis.

What are the directions on in-principle approval?

  • Entities desirous of obtaining authorisation to operate an ETP may apply for ‘in-principle’ approval from RBI for setting up the same before applying for authorisation.
  • The ‘in-principle’ approval shall be valid for 6 months from the date of issue.
  • Entities that obtain ‘in-principle’ approval shall fulfil the prescribed eligibility criteria within 6 months from the date of issue of the ‘in-principle’ approval and submit an application for grant of authorisation.

What are other directions?

  • The ETP operator shall undertake due diligence at the time of on-boarding of all members and identify its members uniquely using Legal Entity Identifier (LEI) and / or Permanent Account Number (PAN).
  • All data relating to activities on the ETP shall be maintained in easily retrievable media for at least 10 years. Without prejudice to the minimum requirement for storage of data, the data sought for any investigation by RBI or any other authority as required under Indian laws or regulations shall be maintained for 3 years from the date of completion of the investigation.
  • Algorithmic trading (Algo trading) shall mean any trade originated by a software programme using automated execution logic.

What are the directions for offshore ETPs?

  • Offshore ETP shall mean an ETP operated from outside India by an operator incorporated outside India.
  • Operators of offshore ETPs desirous of providing residents with access to their platform for transactions with non-residents in eligible derivative instruments involving rupee or rupee interest rate as permitted by RBI under the Foreign Exchange Management Act, 1999 (FEMA, 1999) shall apply for registration with RBI.
  • Operators of offshore ETPs that seek to register with RBI shall fulfil the following criteria –
    • The operator is incorporated in a country which is a member of the Financial Action Task Force (FATF).
    • The operator or the transactions on the offshore ETP are regulated by the financial market regulator of the country where the operator is incorporated or where the transactions are contracted.
    • The financial market regulator that regulates the operator or the transactions on the offshore ETP is a member of the Committee on Payments and Market Infrastructures or the International Organization of Securities Commissions.
    • The offshore ETP permits transactions only in eligible derivative instruments involving rupee and / or rupee interest rates between residents and non-residents that RBI has permitted under FEMA, 1999.
    • The offshore ETP does not allow transactions between residents.


References

Reserve Bank of India. (2024, April 29). 'Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2024 - Draft'. Retrieved from https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=4425

Reserve Bank of India. (2024, April 29). 'RBI releases Draft Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2024'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57809


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