Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2024
The Reserve Bank of India (RBI) has recently released a draft master direction concerning electronic trading platforms (ETPs) for foreign exchange (forex) trading in 2024. This initiative is aimed at fortifying the regulatory framework for managing forex risks through hedging by consolidating guidelines for all transaction types. Additionally, the direction seeks to enhance operational efficiency and facilitate easier access to foreign exchange derivatives for users with limited exposures.
In accordance with RBI Governor Shaktikanta Das’s February monetary policy statement, the proposed directions aim to review the regulatory framework for electronic trading platforms. The goal is to enhance market makers’ ability to access offshore ETPs that offer authorized Indian Rupee (INR) products.
General Conditions
a) No entity, resident or non-resident, shall operate an ETP without obtaining prior authorisation of, or having registered with, the Reserve Bank
b) In respect of eligible instruments, ETP operators authorised by/registered with the Reserve Bank shall ensure that transactions only in instruments approved by the Reserve Bank are contracted on their platform.
c) Existing ETPs requiring authorisation / registration under these Directions shall make an application for authorisation/registration within a period of three months from the date of issue of these Directions. Notwithstanding anything contained in paragraph 3 (a) herein above, an operator of an existing ETP may continue to carry on the operations till disposal of its application by the Reserve Bank granting or rejecting authorisation/registration.
In February, the RBI mentioned that there has been a growing integration of the onshore forex market with offshore markets over the past few years. They also highlighted significant advancements in the technology landscape and an expansion in product diversity.
Regarding eligible instruments, the draft stated that ETP operators authorized by or registered with the RBI should ensure that transactions are only conducted in instruments approved by the central bank on their platform.
Furthermore, the draft emphasized that no entity, whether resident or non-resident, can operate an ETP without obtaining prior authorization from, or being registered with, the Reserve Bank.
The recent warning from the RBI highlights the concerning rise of unauthorized entities offering forex trading opportunities with the lure of high returns. Authorized dealers are urged to promptly report any such activities to the Enforcement Directorate.
Further investigation by the RBI revealed that these unauthorized entities are using local agents to open accounts at various bank branches for the purpose of handling funds related to margins, investments, and charges, under the names of individuals, proprietary concerns, and trading firms.