While the market eagerly awaits the revamped ETP Directions… a quick snapshot of events in this space.

Statement on Developmental and Regulatory Policies Reserve Bank of India dated 4th October 2017

RBI proposed a framework for the authorization of ETPs for financial market instruments, ensuring transparency and efficiency in electronic trading.

9. Framework for Authorising Electronic Trading Platforms (ETP) - Trading on electronic platforms is being encouraged across the world as it enhances pricing transparency, processing efficiency and risk control. It also enables better market surveillance and, therefore, discourages market abuse and unfair trading practices. The Reserve Bank shall put in place a framework for authorisation of electronic trading platforms (ETP) for financial market instruments regulated by the Reserve Bank. The framework shall inter alia include detailed eligibility criteria, technology requirements and reporting standards. While all new electronic trading platforms would be required to obtain authorisation under this framework, existing platforms would also be required to obtain post facto authorisation from the Reserve Bank. A draft framework will be placed on the website of the Reserve Bank for public feedback by end-October 2017.

Draft Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2024 (“Draft Directions”)

  • On 5th October, the Reserve Bank of India (RBI) introduced the ETP Directions to strengthen regulatory oversight of the nation's financial system. Under this framework, only authorized entities are permitted to operate ETPs, ensuring market integrity and transparency.
  • The RBI defines an ETP as any electronic system - excluding recognized stock exchanges - where transactions involving eligible instruments take place. These directions primarily regulate platforms facilitating trades in government securities, money market instruments, foreign exchange instruments, and derivatives.
  • While foreign exchange instruments are included within the scope of eligible instruments, the term itself remains undefined under the ETP Directions. This raises the question of whether the regulations extend to offshore trading platforms operating outside India but providing services to onshore investors?
  • The RBI's Annual Report dated August 29, 2018, implies that regulating offshore trading platforms may not have been the primary intent of the ETP Directions. Instead, the framework was designed to enhance transparency, minimize transaction time and costs, establish efficient audit trails, strengthen risk controls, and improve market monitoring within financial markets governed by the RBI.

Draft Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2024 (“Draft Directions”)

  • While the Draft Directions follow the same principles as regards the ETP Directions, one major new aspect that it covers is that Offshore ETPs are now under the purview of the Draft Directions.
  • What this entails is that those Offshore ETPs that deal in INR and cater to the transactions between an Indian residents and offshore entities will be required to take authorisation from RBI. They are also required to adhere to certain other conditions such as the place where the ETP is situated, whether it is regulated by a financial regulator in its home countries etc.

Once Draft Directions are effective what would that mean?

ETP Directions represent a pivotal move toward enhancing regulatory control over India's financial markets, especially concerning offshore ETP operators. By establishing clear guidelines on eligibility, authorization, and compliance, the RBI seeks to ensure that only reliable and well-governed offshore platforms can engage with Indian residents.

For offshore entities, the Draft Directions offer greater regulatory clarity and a defined framework to access India’s expanding market for derivatives and financial instruments.

Draft Directions aim to balance the facilitation of cross-border innovation with the need for financial stability and investor protection. For offshore ETP operators, complying with these standards will be essential for maintaining their presence in the Indian market and fostering sustainable relationships with both regulators and market participants ---xxx---xxx---xx f xx---xxx---xxx---

About Juris Corp

Founded in 2000, Juris Corp is a law firm adding value in Foreign Investments into India, Banking, Securities, Derivatives, Corporate Commercial, Joint Ventures, M&A Private Equity, Real Estate, Dispute Resolution and International Arbitration, Bankruptcy and Restructuring.

Firms’ Objective

Provide unbiased and unmatched legal services in our areas of practice. Be the Preferred Law Firm for our clients and take that relationship forward by becoming more than a legal advisor: Being their business advisors.

Accolades And Recognition

Juris Corp has been consistently ranked in the top tiers over the years in Banking & Finance, Capital Markets, Corporate M&A, Dispute Resolution, Foreign Direct Investment, Real Estate, Private Equity, Securitisation & Structured Finance and Taxation by several institutions.

Contact us:

MUMBAI OFFICES

Corporate Office

124 A, Jolly Maker Chamber II,

12th Floor, Nariman Point,

Mumbai - 400 021, India

Tel: +91 22 6720 5555

DELHI OFFICE

502, 504 & 506, 5th Floor,

Antriksh Bhawan, Kasturba Gandhi Marg,

New Delhi - 110 001, India

Tel: +91 011 40144100

Fax: +91 11 4014 4122

Visit us at: http://www.juriscorp.in for more information.

DISCLAIMER:

This material and its contents are intended to provide general information on the topic covered herein and it shall, in no way, be treated as an exhaustive or comprehensive treatment of the subject scoped herein or as an advertisement about Juris Corp or any of its lawyers. Any graphics, images etc. used in this material is for informational purposes only and not as advertisement, promotions etc. of any organisations or institution. Further, this article and its contents in any of its form including facts specified, opinions expressed, views given etc. shall not be construed as a legal opinion of the author or that of Juris Corp (“the firm”) directly or indirectly. The reader of this article must exercise due caution while using the contents of this article for any of their personal purposes such as, business implication, personal finances, investment decisions, reproduction of this article in any of the forum(s), circulating this article within the user group(s), publication of this article in any form or manner etc. It is strongly asserted herein that, if this article creates any financial / legal implication to the reader or user of this article, a formal opinion from a qualified professional be sought. The author(s) and the firm hereby expressly disclaims any and all claims, losses, damages, adversity in any of its form whether financial or otherwise arising to the reader or user of this article.