RBI Proposes New Rules for Electronic Trading Platforms

April 30, 2024

The Reserve Bank of India (RBI) has proposed a revised regulatory framework for Electronic Trading Platforms (ETPs) in response to increased integration of the onshore forex market with offshore markets and requests from market makers to access offshore ETPs offering Indian Rupee (INR) products.

In October 2018, the RBI introduced a regulatory framework for ETPs to ensure fair access, transparency, safety, efficiency, and prevention of market abuse
Since then, 13 ETPs operated by 5 operators have been authorized under this framework
In recent years, there has been increased integration of the onshore forex market with offshore markets, developments in technology, and increased product diversity

About Electronic Trading Platforms

Electronic Trading Platforms (ETPs) are digital systems that facilitate the trading of various financial instruments, such as securities, derivatives, and foreign exchange products. ETPs operate outside of traditional stock exchanges and provide a platform for buyers and sellers to trade directly with each other.

Enable faster and more efficient trading compared to traditional methods
Offer increased transparency and liquidity in the market
Provide access to a wide range of financial instruments
Regulated by financial authorities to ensure fair and orderly trading
Examples include Alternative Trading Systems (ATS) and Electronic Communication Networks (ECNs)

Proposed Requirements for ETP Operators

Entities seeking authorization as ETP operators must maintain a minimum net worth of Rs 5 crore at all times
The entity must be a company incorporated in India
Non-resident shareholding in the entity must comply with all applicable laws and regulations, including the Foreign Exchange Management Act, 1999
The entity must maintain robust technology infrastructure with high reliability, availability, scalability, and security to support operations and manage associated risks

Eligible Instruments and Authorization

ETP operators authorized by or registered with the RBI must ensure that only transactions in instruments approved by the central bank are contracted on their platform. No entity, whether resident or non-resident, can operate an ETP without obtaining prior authorization from or registering with the RBI. The RBI has invited comments on the draft directions from ETP operators, banks, market participants, and other interested parties by May 31, 2024.

The proposed revised regulatory framework for ETPs aims to address the evolving landscape of the forex market and the increasing integration of onshore and offshore markets. By setting clear requirements for ETP operators and ensuring that only approved instruments are traded on these platforms, the RBI seeks to promote fair access, transparency, and efficiency while managing the associated risks. The invitation for comments from stakeholders demonstrates the central bank’s commitment to a consultative approach in developing this framework.

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