Executive Summary:
SEBI's circular outlines a revised framework for the Innovation Sandbox, aiming to promote financial technology (FinTech) in the securities market by providing startups and others access to market data and testing environments. It details a two-stage entry process with revised objectives and eligibility criteria. The circular establishes a steering committee to oversee the sandbox operations and assigns responsibilities to enabling organizations.
Key Points / Main Content:
* **Purpose:** To foster innovation in the securities market by encouraging the adoption of FinTech.
* **Innovation Sandbox:** Facilitates access to testing facilities and data for innovators to test solutions offline.
* **Steering Committee:**
* Supervises the Innovation Sandbox operations.
* Processes applications, approves/rejects them, and assigns lead enabling organizations.
* Includes a SEBI representative.
* The lead enabling organization acts as the secretariat for the application.
* **Revised Objective:**
* Promote new products and services, and enhance existing service delivery in the securities market.
* Make services more efficient, investor-friendly, and inclusive.
* Extend access to test data and environments to Financial Institutions, FinTech firms, startups, entities not regulated by SEBI, and individuals.
* **Stages of Innovation Sandbox:**
* Stage I: Limited access to the test environment with caps on resource utilization.
* Stage II: Removes resource utilization caps, subject to availability.
* **Eligibility Criteria:**
* **Stage I:**
* Applicant must be an Indian Citizen or entities registered in India, complying with KYC norms (CKYCR and KRA).
* Genuine need to test the solution using Innovation Sandbox resources, with justification for data and environment access.
* Letter of undertaking that the applicant is not blacklisted.
* **Stage II:**
* Project purpose aligned with Innovation Sandbox objectives.
* Demonstrated adequate progress with the testing plan.
* Presentation of a post-testing strategy.
* Solution offers identifiable benefits to investors and/or the capital market.
* Requires a minimum of 60 days in Stage I.
* Presentation to the steering committee for evaluation.
* **Features and Structure:**
* **Data Sets:**
* Access to anonymized, historical securities market data (e.g., depositories, stock exchange, RTA data).
* Access provided in a phased manner.
* Governed by a confidentiality agreement and End User Agreement, restricting data usage to the stated purpose.
* **Infrastructure:**
* Data shared via APIs.
* Enabling organizations provide test platforms and Innovation Sandbox test kits (data, environment, APIs, access rights).
* **Intellectual Property Rights (IPR):**
* No IPR claims applicable within the Innovation Sandbox.
* **Administrative Components:**
* Applications assessed by the steering committee based on graded eligibility criteria.
* Digital interface for the entire sandbox participation lifecycle.
Impact Analysis:
**Stock Exchanges, Depositories, and Qualified Registrar and Share Transfer Agents (QRTAs):**
* Impact: They are designated as enabling organizations responsible for providing access to test environments and data. They also form the steering committee to supervise the Innovation Sandbox.
* Action Required: Establish and maintain test environments, provide data access, participate in the steering committee, and develop a digital interface for sandbox participation.
**FinTech Firms, Startups, Financial Institutions, and Individuals:**
* Impact: They are potential applicants (Sandbox Applicants) who can leverage the Innovation Sandbox to test and refine their financial technology solutions.
* Action Required: Prepare and submit applications meeting the eligibility criteria for Stage I or Stage II, and adhere to the guidelines and agreements for data usage and testing.
**Investors:**
* Impact: Indirectly benefit from the development of more efficient, inclusive, and investor-friendly financial services and products resulting from innovations tested in the sandbox.
* Action Required: No direct action required; benefit from the potential improvements in the securities market ecosystem.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body for the securities market in India, responsible for promoting its development and regulating it.
Innovation Sandbox: A framework created by SEBI to allow FinTech firms and startups to test their innovations in a controlled environment with access to market data and testing facilities.
FinTech: Financial Technology; refers to the use of technology to improve and automate financial services.
Stock Exchanges: Organizations that provide a platform for trading securities.
Depositories: Organizations that hold securities in electronic form.
Qualified Registrar and Share Transfer Agents (QRTAs): Entities that manage the records of shareholders and facilitate the transfer of shares.
Steering Committee: A committee comprising representatives from enabling organizations and SEBI, responsible for supervising the operations of the Innovation Sandbox.
Securities and Exchange Board of India Act, 1992: The legislation that established SEBI and defines its powers and functions.
CIRCULAR
SEBI/HO/ITD/ITD/CIR/P/2021/16 FEBRUARY 02, 2021
To,
All Stock Exchanges, Depositories and Qualified Registrar and Share Transfer Agents
Dear Sir/Madam,
Subject: Revised Framework for Innovation Sandbox
1. The capital market in India has been an early adopter of technology. SEBI believes that
encouraging adoption and usage of financial technology (‘FinTech’) would have a profound
impact on the development of the securities market. FinTech can act as a catalyst to further
develop and maintain an efficient, fair, transparent and inclusive securities market
ecosystem.
2. To create an ecosystem which promotes innovation in the securities market, SEBI feels that
startups including FinTech firms should have access to market related data, and test
environments which are otherwise not readily available to them, to enable them to test
their innovations effectively before the introduction of such innovations in a live
environment.
3. With a view to operationalize the abovementioned endeavor, SEBI had proposed a concept
of “Innovation Sandbox”. Innovation Sandbox facilitates access to an environment (testing
facilities and test data) provided by Enabling Organizations like Stock Exchanges,
Depositories and Qualified Registrar and Share Transfer Agents (QRTAs) wherein
innovators (hereinafter referred to as Sandbox Applicants) would be testing their
innovations in isolation from the live market and would be used for offline testing of the
proposed solution of the applicant.
4. Steering Committee: To drive the Innovation Sandbox, a steering committee comprising of
representatives from the enabling organizations has been formed. The responsibilities of
the steering committee are as follows:
1 | P a g e4.1. The steering committee shall supervise the operations of the Innovation sandbox. SEBI
representative shall also be included as a member of this committee.
4.2. The steering committee shall process the applications submitted by sandbox applicants,
approve / reject applications, assign a lead enabling organizations etc.
4.3. The secretariat for a particular application would be the assigned lead enabling
organization.
4.4. The lead enabling organizations shall also be responsible for onboarding the applicant
post approval of the application and monitoring the applicant throughout the lifecycle
of the sandboxing.
5. On review of the existing framework, in order to encourage innovation and make it even
more convenient for participation in the Innovation Sandbox, the objective and eligibility
criteria of the Innovation Sandbox has been revised with graded entry norms.
5.1. Revised objective of Innovation Sandbox: To promote innovation both in terms of
new products and services as well as new ways of delivering existing products and
services so as to:
5.1.1. Create new opportunities in the securities market
5.1.2. To make existing services more efficient / investor friendly/ inclusive
This would be achieved by giving access to both test data and test environment to Financial
Institutions, FinTech firms, startups including entities not regulated by SEBI including
individuals.
5.2 Stages of Innovation sandbox: The details of the stages are as below:
5.2.1 Stage – I: During Stage – I, limited access to the test environment shall be
provided and there shall be cap on the utilization of resources in terms of
processing power, memory, storage etc.
5.2.2 Stage – II: During Stage – II, the cap on the utilization of resources shall be
removed, subject to availability of resources at that point of time.
5.3 Eligibility Criteria: The eligibility criteria for Stage-I and Stage-II are as follows:
5.3.1 Stage- I Eligibility Criteria: The Stage-I eligibility criteria shall be the
2 | P a g efollowing:
5.3.1.1 Applicant must be an Indian Citizen or entities registered in India. The
Know Your Customers (KYC) norms must be in line with the Central
Know Your Customers Registry (CKYCR) and KYC Registration
Agency (KRA) KYC requirements comprising of following:
a) Name of the Financial Institution/Fintech/Startup/Individual
b) Name(s) of the Directors, Partners, if applicable
c) Address of Registered Head Office / Correspondence Address
d) Date and Year of establishment / Registration, if applicable
e) Contact Number and Email Id
f) Website, if applicable
g) Govt. Issued Identification Details like Passport, Voter Id, Driving
licence, PAN Aadhaar Card, etc.
h) Letter of undertaking that the applicant is not blacklisted or debarred
by any Govt. department due to breach of general or specific
instructions, corrupt or fraudulent or any other unethical business
practices.
i) Any other information as may be required to process the application.
5.3.1.2 Genuine need to test the solution: The applicant should have a
genuine need for testing the solution using resources available in the
Innovation Sandbox. The applicant should provide justification of
requirement to access the test data and test environment and also
inform what dataset is required.
5.3.2 Stage- II Eligibility Criteria: The Stage-II criteria are as following
5.3.2.1 Purpose: The purpose of the project should be aligned with the
objective of the innovation sandbox.
5.3.2.2 Adequate Progress: The applicant should demonstrate that they
have achieved adequate progress and are on track with their testing
plan.
5.3.2.3 Post-testing strategy: The applicant should present their post-
testing plan.
5.3.2.4 Benefits to investors: The solution should offer identifiable benefits
(direct or indirect) to investors and / or to the capital market and
financial sector as a whole.
5.3.3 An applicant is eligible for Stage-II after completing minimum 60 days in the
3 | P a g eStage-I of Innovation Sandbox testing. Applicants are required to make a
presentation before the steering committee for evaluation and entry to
Stage-II either physically or through virtual mode.
Features and Structure of Innovation Sandbox
6. The components and structure of the Innovation Sandbox can be broadly classified into
following categories:
6.1. Design Components
6.1.1. Data Sets
6.1.1.1. One of the most important components of an Innovation Sandbox is access
to securities market related data, which will enable applicants to test and
improve their FinTech solutions.
6.1.1.2. The datasets that will be made available to applicants shall be clearly
defined and known to market participants. Indicative datasets which may
become part of the Innovation Sandbox are as follows:
a) Depositories data: Holding data, KYC data
b) Stock exchange data: Transactions data like order log, trade log
c) RTA data: Mutual fund transactions data
6.1.1.3. The datasets shall be historical and anonymized data and shall also
contain data related to episodic market events. Live data shall not be made
available to applicants.
6.1.1.4. Access to datasets shall be provided in a phased manner starting with
limited amount of data and based on validations, more exhaustive data would
be provided to applicants.
6.1.1.5. The use of datasets shall be governed by a comprehensive confidentiality
agreement which shall include an ‘End User Agreement’ clearly specifying that
the datasets made available shall not be sold or sublet or shared or misutilized
in any manner with any other entities, and shall be used only for the stated
purpose.
4 | P a g e6.1.2. Infrastructure
6.1.2.1. The datasets to be used for testing solutions in the Innovation Sandbox
shall be shared preferably through application program interface (APIs),
which would be published and made available to all eligible applicants.
6.1.2.2. Existing test platform shall be made available by the enabling
organizations to the eligible applicants to ensure that the innovative solution
is working in the enabling organization's environment.
6.1.2.3. Enabling organizations shall also provide Innovation Sandbox test kit
(comprising of Test data, test environment, APIs, configurable access rights
etc.) to the eligible applicants.
6.2. Intellectual Property Rights (IPR): It is envisaged that there will be multiple
applications with similar ideas in the innovation sandbox. Hence, no claim with respect
to the IPR shall be applicable in the Innovation Sandbox.
6.3. Administrative Components
6.3.1. Application Assessment
Applications received for participating in the Innovation Sandbox will be
assessed by the steering committee. It would follow graded eligibility criteria.
6.3.2. Interface for Innovation Sandbox
Enabling organizations shall endeavor to make the entire sandbox participation
lifecycle (applying, tracking, on-boarding, monitoring, reporting, etc.)
completely digital to ensure transparency and efficiency. The Innovation
Sandbox web portal can be accessed at: https://innovation-sandbox.in/
5 | P a g eThis circular is being issued in exercise of powers conferred under Section 11 (1) of the
Securities and Exchange Board of India Act, 1992 and Section 19 of the Depositories Act,
1996 to protect the interests of investors in securities and to promote the development of,
and to regulate the securities market.
Yours faithfully,
Avneesh Pandey
Chief General Manager
Information Technology Department
Phone: +91-022-26449640
Email: avneesh@sebi.gov.in
6 | P a g e