All operators of Electronic
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.
Chief General Manager
BANK OF INDIA
FINANCIAL MARKETS REGULATION DEPARTMENT
1ST FLOOR, CENTRAL OFFICE (MAIN BUILDING), FORT
MUMBAI 400 001
No.FMRD.FMID.08/2018 dated October 05, 2018
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
directions shall be called ‘The Electronic Trading Platforms (Reserve Bank)
Directions are issued to the entities operating Electronic Trading
Platforms (ETPs) to transact trade in eligible instruments under the
shall come into force with effect from October 05, 2018.
(1) For the purpose of these
directions, unless the context otherwise requires,
trading’ or ‘Algo trading’ shall mean any trade originated by a software
programme using automated execution logic.
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.
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.
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.
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.”
Operator’ shall mean an entity authorised by the Reserve Bank to operate an
ETP under these Directions.
exchange’ shall have the meaning assigned in section 2(n) of the Foreign
Exchange Management Act, 1999.
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
(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
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.
5. 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
entity shall be a company incorporated in India.
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.
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.
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
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
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.
seeking authorisation to operate ETP shall earmark a minimum capital of
Rs.5 crore (Rupees five crore only) for the purpose.
c. Technological Criteria
The entity seeking authorisation
as an ETP operator shall, at the minimum, fulfil the following
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.
capability to disseminate trade information on a real-time basis or near
(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
(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:
ETP Operator has violated a statutory provision or any rule or regulation
or direction or order or instruction issued by the Reserve Bank; or
ETP Operator has violated any of the terms or conditions stipulated by the
Reserve Bank while granting authorisation; or
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
(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:
objective, fair and transparent membership criteria;
due diligence at the time of on-boarding of all members and maintain all
relevant information about the member;
its members uniquely using Legal Entity Identifier (LEI) and/or Permanent
Account Number (PAN);
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;
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
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;
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:
access control for its members and prevent unauthorised access to the
the ETP from other financial services or infrastructure to prevent unfair
access to the ETP;
that all trades on the system, without exception, are dealt within a fair,
non-discretionary and orderly manner, and as per established procedure;
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:
place a framework for testing and on-boarding of algo systems;
that such facilities are offered in a transparent and non-discriminatory
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.
8. 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
and disclose conflict of interest, if any, arising from participation of
related parties or group agencies to the Reserve Bank; and
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:
an effective governance and risk management mechanism for managing all
risks inherent in such outsourcing relationships;
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.
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
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
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.
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.
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
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.
operator shall maintain confidentiality and security of all ETP data.
Access to such data should be strictly under the control of the ETP
13. Reporting requirements
shall provide any data and/or information as required by the Reserve Bank
in the format and within the timeframe prescribed.
operator shall report transaction information to any trade repository or
reporting platform, in the format and in the manner, as specified by the
shall provide data/information to any other agencies/authorities as may be
required under the Indian laws.
shall keep the Reserve Bank informed of events resulting in disruption of
activities or market abuse without undue delay.
14. Termination of operation
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
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
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