ELECTRONIC TRADING PLATFORMS (Syllabus: GS Paper 3 – Economy)

Context: The Reserve Bank of India recently introduced a revised regulatory framework for Electronic Trading Platforms (ETPs) due to the heightened integration of the onshore forex market with offshore markets.

Electronic Trading Platforms (ETPs)

• Definition: These are electronic systems facilitating transactions in eligible instruments such as securities, money market instruments, foreign exchange instruments, derivatives, etc., outside recognized stock exchanges.
• Regulatory Authorization: In India, operation of an ETP requires prior authorization from the Reserve Bank of India (RBI) as per ‘The Electronic Trading Platforms (Reserve Bank) Directions, 2018’.
• Legal Compliance and Liability: Resident entities operating ETPs without RBI authorization and engaging in payment transactions outside India may face legal consequences under Foreign Exchange Management Act, 1999, and Prevention of Money Laundering Act, 2002.
• Instrument Approval: ETPs authorized by the Reserve Bank are permitted to host transactions only in instruments approved by the RBI.
• Authorization Criteria: Entities seeking authorization as ETP operators must be incorporated companies in India.

oMinimum Net-Worth Requirement: An entity aspiring to operate as an ETP operator must maintain a minimum net-worth of Rs. 5 crore and uphold this threshold continuously.

oTransition for Existing Entities: Existing ETP operators with a net-worth below Rs. 5 crore have a one-year grace period from authorization to achieve the prescribed minimum net-worth.

oBanking Institutions Requirement: Banks intending to operate ETPs must allocate a minimum capital of Rs. 5 crore for this purpose.