Executive Summary:
This document contains the Reserve Bank of India's (RBI) directions for Electronic Trading Platforms (ETPs), effective October 5, 2018. It outlines the framework for authorization, operation, and supervision of ETPs dealing in financial market instruments regulated by the RBI. Existing ETPs must apply for authorization within six months of the directions' issuance.
Key Points / Main Content:
Authorization Requirements:
* No entity can operate an ETP without prior authorization from the RBI.
* Existing ETPs must apply for authorization within six months of October 5, 2018, but can continue operating until the RBI makes a decision on their application.
* Authorized ETPs can only host transactions in instruments approved by the RBI.
* ETPs operated by banks for their customers on a bilateral basis are exempt, provided they do not offer direct or indirect access to market makers.
Eligibility Criteria:
* The entity must be a company incorporated in India. Non-resident shareholding must comply with applicable laws.
* The entity or its key managerial personnel must have at least three years of experience in operating trading infrastructure in financial markets.
* A minimum net worth of Rs. 5 crore is required. Banks operating ETPs must earmark a minimum capital of Rs. 5 crore.
* ETPs need to maintain robust technology infrastructure with high reliability, availability, scalability, and security.
Operating Framework:
* ETPs must have transparent membership criteria and conduct due diligence on members.
* ETPs must implement a comprehensive risk management framework, including measures for trading integrity and algorithmic trading systems.
* ETPs need to have rules for handling exigencies and dispute resolution mechanisms.
* ETPs must implement systems for real-time and post-facto surveillance to maintain market integrity.
Transparency, Outsourcing, and Security:
* ETPs must disclose conflicts of interest and implement a fair fee structure.
* Outsourcing arrangements must include effective governance and risk management, and not hinder compliance with RBI directions.
* ETPs must have a Business Continuity Plan (BCP) and adequate information and data security infrastructure, including annual IT audits.
Data Management and Reporting:
* ETP data must be maintained for at least 10 years.
* ETPs must maintain data confidentiality and security.
* ETPs must provide data and information as required by the RBI and report transaction information to trade repositories.
* ETPs must inform the RBI of disruptions or market abuse events without delay.
Termination and Exemption:
* ETPs require prior RBI approval to terminate operations.
* The RBI may exempt any ETP operator from any provisions of these directions.
Application Process:
* Entities must submit an application in the prescribed format to the RBI.
Impact Analysis:
ETP Operators:
* Impact: Must seek authorization from RBI to continue operations, adhere to new operational guidelines and eligibility criteria, and face potential cancellation of authorization for non-compliance.
* Action Required: Review the new directions, ensure compliance, prepare and submit an authorization application within six months, and implement necessary changes to systems and processes.
RBI:
* Impact: New responsibilities for authorization, supervision, and enforcement of regulations for ETPs.
* Action Required: Establish processes for reviewing applications, granting authorizations, and monitoring ETP compliance.
Financial Market Participants (Members of ETPs):
* Impact: May experience changes in access, trading rules, and fee structures on ETPs.
* Action Required: Review the rules and regulations of the ETPs they use and comply with any new requirements.
Scheduled Commercial Banks:
* Impact: ETPs operated by scheduled commercial banks do not have to meet the general eligibility criteria.
* Action Required: Ensure that the bank ETPs follows the rules of the operating framework.
Key Entities Referenced
Reserve Bank of India: The central bank of India, which issued the directions for Electronic Trading Platforms (ETPs).
Electronic Trading Platforms: Electronic systems, other than recognised stock exchanges, on which transactions in eligible instruments are contracted.
Electronic Trading Platforms Reserve Bank Directions, 2018: The official name of the directions issued by the Reserve Bank of India regarding the regulation of electronic trading platforms.
Financial Markets Regulation Department: A department of the Reserve Bank of India responsible for financial market regulation.
Mumbai, Maharashtra: City in India where the Financial Markets Regulation Department of the Reserve Bank of India is located.
Reserve Bank of India Act, 1934: The Act of the Indian Parliament that established the Reserve Bank of India and grants it powers to regulate the financial system.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Companies Act, 2013: An Act of the Parliament of India that regulates incorporation, operation and winding up of companies in India.
RESERVE BANK OF INDIA
www.rbi.org.in
RBI/2018-2019/55
FMRD.FMID.07/14.03.027/2018-19 October 05, 2018
To
All operators of Electronic Trading Platforms
Dear Sir/Madam
The Electronic Trading Platforms (Reserve Bank) Directions, 2018
Please refer to Paragraph 9 of the Statement on Developmental and Regulatory
Policies, Reserve Bank of India issued as part of the Fourth Bi-monthly Monetary
Policy Statement for 2017-18 dated October 04, 2017, wherein it was stated that the
Reserve Bank shall put in place a framework for authorization of electronic trading
platforms (ETPs) for financial market instruments regulated by the Bank.
2. The draft ETP directions were released for public comments on October 12, 2017.
Based on the feedback received the directions have been finalized. The Directions
are enclosed herewith.
Yours faithfully
(T. Rabi Sankar)
Chief General Manager
�वत्तीय बाज़ार �व�नयमन �वभाग,क�द्र�य कायार्लय, पहल� मंिजल, मुख्य भवन,शह�द भगत �सहं माग,र् फोटर्,मुंबई–400001.भारत
फोन: (91-22) 2261 1765,फैक्स: (91-22) 22702290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Central Office, 1st Floor, Main Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400001. India
Tel: (91-22) 2261 1765, Fax: (91-22) 22702290 e-mail- cgmfmrd@rbi.org.in
िहन्दी आसान है इसका प्रयोग बढ़ाइए
,RESERVE BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
ST
1 FLOOR, CENTRAL OFFICE (MAIN BUILDING), FORT
MUMBAI 400 001
Notification No.FMRD.FMID.08/2018 dated October 05, 2018
The Electronic Trading Platforms (Reserve Bank) Directions, 2018
The Reserve Bank of India (herein after called ‘the Reserve Bank’) having considered it
necessary in public interest and to regulate the financial system of the country to its advantage,
in exercise of the powers conferred by section 45W of the Reserve Bank of India Act, 1934,
(herein after called ‘the Act’) read with section 45U of the Act and of all the powers enabling it
in this behalf, hereby issues the following Directions to the entities operating Electronic Trading
Platforms (ETPs) to transact trade in eligible instruments.
1. Short title and commencement of the directions
(1) These directions shall be called ‘The Electronic Trading Platforms (Reserve Bank)
Directions, 2018’.
(2) These Directions are issued to the entities operating Electronic Trading Platforms
(ETPs) to transact trade in eligible instruments under the Directions.
(3) They shall come into force with effect from October 05, 2018.
2. Definitions
(1) For the purpose of these directions, unless the context otherwise requires,
(i) ‘Algorithmic trading’ or ‘Algo trading’ shall mean any trade originated by a
software programme using automated execution logic.
(ii) ‘Approved’ shall mean approved by the Reserve Bank, either in the authorisation
document at the time of authorisation or at any later point of time when
conditions of authorisation are altered.
(iii) Electronic Trading Platform (ETP) shall mean any electronic system, other than a
recognised stock exchange, on which transactions in eligible instruments as
defined in paragraph 2(iv) below are contracted.
1(iv) ‘Eligible Instruments’ shall mean securities, money market instruments, foreign
exchange instruments, derivatives, or other instruments of like nature, as may be
specified by the Reserve Bank from time to time under section 45 W of Chapter
III-D of the Reserve Bank of India Act, 1934.
(v) In these Directions, unless the subject or the context otherwise requires, ‘Entity’
shall mean and include an agency formed as a ‘company’ and incorporated
under the provisions of the Companies Act, 2013 or under any of the previous
enactments in India.”
(vi) ‘ETP Operator’ shall mean an entity authorised by the Reserve Bank to operate
an ETP under these Directions.
(vii) ‘Foreign exchange’ shall have the meaning assigned in section 2(n) of the
Foreign Exchange Management Act, 1999.
(viii) ‘Recognised stock exchange’ shall have the meaning assigned in section 2(f) of
the Securities Contracts (Regulations) Act, 1956.
3. (1) No entity shall operate an ETP without obtaining prior authorisation of the Reserve
Bank under these directions.
(2) ETPs existing and operating on or before the commencement of these directions
shall make an application for authorisation within a period of six months from the
date of issue of these directions. Notwithstanding anything contained in Para 3 (1)
herein above, an existing ETP Operator may continue to carry on the operations till
disposal of its application by the Reserve Bank granting or rejecting the letter of
authorisation.
(3) ETPs authorised by the Reserve Bank shall host transactions only in instruments
approved by the Reserve Bank.
4. Electronic trading platforms operated by banks for their customers (acting as users) on
a bilateral basis are exempt from the provisions of these Directions provided that such
platforms do not extend direct or indirect access to market makers in any market for
eligible instruments, which would include, for the purpose of foreign exchange
transactions, authorized dealers.
25. Eligibility Criteria for authorization of ETPs
(1) An entity seeking authorisation as an ETP operator to commence or carry on ETP
operation shall fulfil the following criteria:
a. General Criteria
(i) The entity shall be a company incorporated in India.
(ii) The existing entities operating ETPs, without being incorporated in India,
shall conform with the requirement of incorporation in India within a period of
one year from the date of issue of authorisation of the ETP by the Reserve
Bank under these directions.
(iii) Shareholding by non-residents, if any, in the entity seeking authorisation as
an ETP operator shall conform to all applicable laws and regulations,
including the Foreign Exchange Management Act, 1999.
(iv) The entity seeking authorisation as an ETP operator or its key managerial
personnel shall have experience of at least three years in operating trading
infrastructure in financial markets.
Explanation: ‘Key managerial personnel’ shall have the same meaning as
assigned to it in the Companies Act, 2013.
b. Financial Criteria
(i) An entity seeking authorisation as an ETP operator under these Directions
shall maintain a minimum net-worth of Rs.5 crore (Rupees five crore only) and
shall continue to maintain the minimum net-worth prescribed herein at all
times.
The existing entities operating ETPs with a net-worth lower than the
prescribed net-worth requirement shall achieve the minimum net-worth of
Rs.5 crores (Rupees five crore only) within one year from the date of
authorisation by the Reserve Bank.
(ii) Banks seeking authorisation to operate ETP shall earmark a minimum capital
of Rs.5 crore (Rupees five crore only) for the purpose.
3c. Technological Criteria
The entity seeking authorisation as an ETP operator shall, at the minimum, fulfil
the following technological requirements:
(i) Obtain and maintain robust technology infrastructure with a high degree
of reliability, availability, scalability and security in respect of its systems,
data and network, appropriate to support its operations and manage the
associated risks.
(ii) Ensure capability to disseminate trade information on a real-time basis or
near real-time basis.
(2) The eligibility criteria, prescribed in paragraph 5(1) (a) herein above, shall not apply
to ETPs operated by Scheduled Commercial Banks.
6. Grant of Authorisation to operate ETP and cancellation of Authorisation
(1) Entities satisfying the eligibility criteria prescribed under these Directions may submit
an application in the prescribed format given in Annex to the Chief General Manager,
Financial Markets Regulation Department, Reserve Bank of India, 1st Floor, Main
Building, Shaheed Bhagat Singh Marg, Mumbai – 400001, for grant of authorisation to
operate an ETP.
(2) The Reserve Bank may call for any additional information or seek any clarification
from the applicant which in the opinion of the Reserve Bank is relevant and the applicant
shall furnish such additional information and clarification.
(3) The Reserve Bank may also obtain any additional information from other regulators
or Government departments/agencies or any other authority, which in the opinion of
the Reserve Bank is relevant for disposal of the application.
(4) The Reserve Bank may, after being satisfied that the applicant fulfils the eligibility
criteria, grant authorisation to operate an ETP subject to the terms and conditions
stipulated therein.
4(5) The authorisation granted to an entity to operate an ETP is not transferrable and the
Reserve Bank may impose additional conditions if the ETP operator is found to
violate the provisions of these Directions or any other rules or regulations or
conditions of authorisation.
(6) The Reserve Bank may cancel an authorisation issued to an entity to operate an
ETP, after affording a reasonable opportunity to represent its version, if it is satisfied
that:
a. the ETP Operator has violated a statutory provision or any rule or regulation
or direction or order or instruction issued by the Reserve Bank; or
b. the ETP Operator has violated any of the terms or conditions stipulated by
the Reserve Bank while granting authorisation; or
c. the continuance of authorisation is prejudicial to public interest or financial
system of the country.
(7) The decision of the Reserve Bank, to grant or reject the letter of authorisation to operate
ETP or to cancel the letter of authorisation to commence or carry on ETP operations,
would be final.
(8) In case of rejection of the application received from the existing operators or cancellation
of letter of authorisation by the Reserve Bank, the concerned ETP Operator shall stop
the ETP operations with immediate effect unless the Reserve Bank has indicated any
other specific date in the written communication to stop the ETP operations.
(9) In case of cancellation of authorisation of an ETP Operator, the letter of authorisation in
original shall be surrendered to the Reserve Bank.
7. Operating Framework
(1) An ETP operator shall adhere to the following requirements.
a. Access and participation: An ETP operator shall:
(i) Have objective, fair and transparent membership criteria;
5(ii) Undertake due diligence at the time of on-boarding of all members
and maintain all relevant information about the member;
(iii) Identify its members uniquely using Legal Entity Identifier (LEI) and/or
Permanent Account Number (PAN);
(iv) Have well documented rules and regulations regarding, but not limited
to, on-boarding, suspension and cessation of membership, roles and
responsibilities of members and operator, liability framework for ETP
and users in case of breach of rules and regulations, restrictions or
other requirements that may apply for using the ETP, processing and
execution of orders, risk management and control;
(v) Make available pre-trade information such as bid/offer prices, related
quantities, depth of trading interest, or such other information, to its
members in a fair and non-discriminatory basis consistent with the
rules governing transactions;
(vi) Make available post-trade information such as the price, volume and
time of transactions or such other information, to its members, in a fair
and non-discriminatory basis consistent with the rules governing
transactions;
(vii) Ensure that all documents, rules or regulations referred to in
paragraph 7(1) a (iv) herein above are freely available to the
members.
b. Risk Management
(i) An ETP operator shall put in place a comprehensive risk management
framework covering all aspects of its operations. It shall ensure that risks
associated with its operations are identified properly and managed
prudently.
(ii) Trading integrity: An ETP operator shall:
a. Ensure access control for its members and prevent unauthorised
access to the platform;
6b. Segregate the ETP from other financial services or infrastructure to
prevent unfair access to the ETP;
c. Ensure that all trades on the system, without exception, are dealt
within a fair, non-discretionary and orderly manner, and as per
established procedure;
d. Prevent transactions that are not in compliance with the conditions
of authorisation or with the prevailing legal or regulatory
requirements.
(iii) Algorithmic systems: An ETP operator that provides/facilitates
participation by algorithmic trading systems (algo systems) shall:
a. Put in place a framework for testing and on-boarding of algo
systems;
b. Ensure that such facilities are offered in a transparent and non-
discriminatory manner;
c. Ensure that their systems and controls are adequate and effective
for monitoring and managing risks arising from algo systems;
(iv) An ETP operator shall put in place appropriate controls to reduce the
likelihood of erroneous transactions such as off-market quotes or trades,
fat finger errors, unintended or uncontrolled trading activity by members,
etc.
(v) Handling exigencies: An ETP operator shall put in place rules and
regulations in transparent manner to deal with exigencies like
suspension/cessation of trading or cancellation of orders/trades,
malfunctions in its systems or erroneous use by members, or any other
unforeseen situation. Such exigencies should be dealt with in accordance
with clearly laid down rules and regulations.
(vi) Dispute resolution: An ETP operator shall put in place an arrangement
to address any dispute that may arise or likely to arise between its
members.
78. Surveillance: An ETP operator shall implement systems and controls to ensure fair and
orderly trading to maintain market integrity and monitor trading activity on a real time
and post facto basis.
9. Transparency: (1) An ETP operator shall
(i) Identify and disclose conflict of interest, if any, arising from participation of related
parties or group agencies to the Reserve Bank; and
(ii) Implement a fair, non-discriminatory and transparent fee structure for its
members.
10. Outsourcing of operations: (1) An ETP operator outsourcing its
operations/technology/activities, partially or fully, shall ensure that:
(i) It has an effective governance and risk management mechanism for managing
all risks inherent in such outsourcing relationships;
(ii) Such outsourcing arrangements do not impede or interfere with or hinder such
ETP operator from compliance with these Directions or any other
regulations/directions/instructions/guidelines issued by the Reserve Bank from
time to time.
(iii) The requirements relating to preservation, access, use of data and reporting
as given in paragraph 12 and paragraph 13 below are adhered to, even if the
agreement/arrangement between the ETP operator and its outsourced entity is
rescinded or expired.
11. Technology and Information security (IS)
(i) Business Continuity and Disaster recovery: The ETP operator shall have in place
a suitable Business Continuity Plan (BCP) including contingency and disaster
recovery arrangements that are appropriate to the nature, scale, and complexity
of its business to ensure continuity and availability of its operation.
(ii) An ETP operator shall put in place adequate information and data security
infrastructure. It should adhere to Information Technology (IT) and Information
Security (IS) norms/guidelines, if any, prescribed by the Reserve Bank or any
other regulator or public authority from time to time, as applicable to it.
8(iii) An ETP operator shall carry out IT/IS audit, at least once in a year, by auditors
with Certified Information System Auditor (CISA) certificates or auditors
empanelled by Indian Computer Emergency Response Team (CERT-In) or such
other professional bodies.
(iv) Notwithstanding anything contained in Para 11 (iii) herein above, the Reserve
Bank may, at its discretion order an IT/IS audit of the ETP by an independent
auditor(s), selected by the Reserve Bank.
12. Preservation, access and use of data
(i) All data relating to activities on the ETP (henceforth, ETP data) 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 the Reserve Bank or any other authority as required under Indian
laws or regulations shall be maintained for three years from the date of
completion of the investigation.
(ii) An ETP operator shall maintain confidentiality and security of all ETP data.
Access to such data should be strictly under the control of the ETP operator.
13. Reporting requirements
(i) An ETP shall provide any data and/or information as required by the Reserve
Bank in the format and within the timeframe prescribed.
(ii) An ETP operator shall report transaction information to any trade repository or
reporting platform, in the format and in the manner, as specified by the Reserve
Bank.
(iii) An ETP shall provide data/information to any other agencies/authorities as may
be required under the Indian laws.
(iv) An ETP shall keep the Reserve Bank informed of events resulting in disruption of
activities or market abuse without undue delay.
914. Termination of operation
(i) An ETP operator, who is holding a letter of authorisation to commence or carry
on ETP operations, may terminate its operation with prior approval of the
Reserve Bank with regard to timing and date of termination of operations, and
shall comply with the terms and conditions stipulated by the Reserve Bank.
(ii) In the event of early termination of its operations, the ETP operator shall
surrender to the Reserve Bank the letter of Authorisation in original granted to it
to commence or carry on the ETP operations.
15. Exemption from provisions of these directions
The Reserve Bank, on being satisfied that it is necessary to do so, may exempt any ETP
Operator or class of ETP Operators either generally or for such period as may be specified,
from any or all of the provisions of these Directions, subject to such terms or conditions or
limitations or restrictions as it may think fit and proper to impose, in the interest of public or
financial system of the country.
10Annex
Application Form for Authorisation to operate an Electronic Trading Platform
From
Name and address of registered office/ principal place of business of applicant
To
Chief General Manager,
Financial Markets Regulation Department,
Reserve Bank of India, Central Office,
1st Floor, RBI Main Building,
Shaheed Bhagat Singh Marg,
Mumbai –400001
Dear Sir,
Application for authorisation for setting up / operating an Electronic Trading Platform
We hereby submit an application for authorisation to set up / operate an electronic trading
platform for …(Name of instrument/s). The required information and documents have been
furnished as per instructions.
2. We declare that to the best of our knowledge and belief the information furnished in the
statements/annexes enclosed are true/correct and complete and nothing has been concealed.
Yours faithfully
Signature:
Name:
Designation:
Company Seal:
Date and Place:
Encl: sheets
11Application Form for Authorisation to operate an Electronic Trading Platform
Part-A
1. Name, legal status and constitution of ETP operator.
2. Promoters/owners, Directors and Senior Management details (details of foreign holding if
any).
3. Net-worth – Auditor’s certificate, audited financial statements if available.
4. Brief note on the ETP operator.
5. Previous experience of applicant and associated companies/firms/entities in operating
trading infrastructure in financial markets.
6. Details of any punitive action or show cause notice or criminal prosecution by any regulator
or any enforcement agency or any court, in India or in other jurisdictions against the
applicant, any of its promoters or directors or any of its associated companies/firms/entities.
7. Details of the applicant, any of its promoters or directors, or any of its associated
companies/firms/entities that has appeared in the list of defaulters published by any credit
information company.
PART – B
1. Particulars of Electronic Trading Platform for which authorization is sought
a. Details including financial instrument/s proposed to be traded, technology
employed, trading process and trading rules, risk management practices,
monitoring and surveillance system, other services being provided as part of
trading systems etc.
b. Details on adherence to eligibility criteria prescribed under the regulations.
c. Details on adherence to other requirements prescribed under the regulations.
d. Information on data storage and access.
2. If desirous of providing clearing and settlement service, the details thereof.
3. Any other information the applicant wishes to furnish.
12