Out with the offshore, in with the onshore: RBI's new ETP playbook

INTRODUCTION

The Reserve Bank of India (“RBI”) recently notified the Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2025 (“2025 Master Directions”) by way of exercising its powers under the Reserve Bank of India Act, 1934 (“RBI Act, 1934”).[1] With the 2025 Master Directions, the RBI has issued some clarifications/additional measures that are to be adhered to by entities seeking to operate electronic trading platforms (“ETP(s)”) in India, and has superseded the erstwhile Electronic Trading Platforms (Reserve Bank) Directions, 2018 (“2018 Directions”).

REGULATORY CONTEXT AND CUREENT STATUS

In 2017, in its Statement on Developmental and Regulatory Policies (“RBI Statement”),[2] the RBI had observed that trading on ETPs was being encouraged across the world, since they enhanced the pricing transparency, and ensured better risk control. It was observed that ETPs enabled better market surveillance and discouraged market abuse and unfair trading practices. In this context, it was announced that the RBI would put in place a framework for authorisation of ETPs for financial market instruments regulated by the RBI, and this framework would inter alia include detailed eligibility criteria, technology requirements, etc.

Post the RBI Statement, the RBI released the ‘Draft Directions regarding Framework for Authorisation of Electronic Trading Platforms under Section 45W of the RBI Act, 1934’ (“2017 Draft Directions”).  The 2017 Draft Directions invited public comments and set out the broad objectives that it sought to achieve which inter alia included (i) development of market through transparent trading, safe settlement systems and standardisation of instruments; (ii) promoting fair, equitable, orderly and non-discriminatory access to markets; and (iii) preventing of market abuse and ensuring financial integrity.

Post stakeholder feedback, the RBI issued the 2018 Directions setting out a licensing regime for entities seeking to operate ETPs in India, with ETPs being defined to mean any electronic system other than a recognised stock exchange where transactions in ‘eligible instruments’[3] were contracted.[4] The 2018 Directions set out specific requirements that an entity operating an ETP must necessarily have in place prior to conducting such operations, and also contained specific exclusions in relation to circumstances where the 2018 Directions would not be applicable.

While the RBI has issued licenses for certain entities for operating of ETPs under the 2018 Directions, the RBI found that certain entities continued to operate ETPs without receiving authorisation, and accordingly to caution Indian residents against dealing with such entities, the RBI for the first time in February, 2022, published an Alert List (“Alert List”) containing the names of entities not authorised to operate ETPs, and the Alert List continues to be updated from time to time. However, there continued to be some regulatory ambiguity since, in some cases, entities that were not otherwise operating in this space faced regulatory scrutiny from the RBI, especially if facilitating forex transactions, with the RBI quick to include such entities in the Alert List. In this light, the RBI issued the Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2024 (“2024 Draft Directions”), seeking to overhaul the regulatory regime for ETPs, and post receipt of stakeholder feedback, issued the 2025 Master Directions, setting out the overhauled regulatory framework governing the functioning of ETPs.

LEGAL FRAMEWORK FOR ETPs

The transition from the 2024 Draft Directions to the 2025 Master Directions represents more than routine regulatory refinement—it reflects a deliberate recalibration of India's approach to ETP oversight. This comparative analysis reveals key areas where the 2025 Master Directions diverge from their draft predecessor, each change signalling the RBI's evolving priorities: accelerating domestic market development, enhancing regulatory efficiency through digitalization, and maintaining stringent oversight and being more selective in granting authorisation.

Blanket Exemption to Banks and ‘Primary Dealers’

The 2025 Master Directions clarify at the outset that it does not apply to ETPs operated by: (i) a scheduled commercial bank and includes a branch of a foreign bank operating in India; and (ii) a standalone ‘primary dealer for transactions’ in eligible instruments, where the bank or the standalone primary dealer operating the ETP is the sole quote/price provider and a party to all transactions contracted on the system.[5] This signals a change in the RBI’s position from the 2018 Directions where the RBI had extended only exemptions from applicability/limited applicability in the following circumstances: (i) complete exemptions – for banks from requiring authorisations on a bilateral basis, provided that the banks did not extend direct or indirect access to market makers of any of the eligible instruments;[6] (ii) partial exemptionsfor scheduled commercial banks that had to apply for authorisation to operate ETPs, but were not required to fulfil specific eligibility requirements, specified for general applicants.[7]

However, there have not been any meaningful relaxations/exemptions given to these entities with the 2025 Master Directions explicitly clarifying that the RBI may (for reasons such as public interest) mandate the abovementioned banks and standalone primary dealers to comply with any or all conditions as set out in the directions. Thus, the exemption from regulation will not provide comfort to these operators, given that the RBI, by exercising its discretion, can reverse this exemption.

Application and Submission Process

The 2025 Master Directions specify that applications should be submitted through the PRAVAAH portal of the RBI.[8], whereas the 2024 Draft Directions required submission directly to the Chief General Manager, Financial Markets Regulation Department.[9] This digitalization represents more than administrative convenience—it signals the RBI's commitment to modernizing regulatory processes. The PRAVAAH portal integration enables: (i) real-time application tracking and status updates; (ii) standardized documentation requirements; (iii) reduced processing delays and human errors; (iv) enhanced transparency in the authorization process; and (iv) better data management and analytics for regulatory oversight. This change aligns with the government's broader Digital India initiative and demonstrates the RBI's recognition that efficient regulatory processes are essential for fostering financial market innovation.

In-principle Approval

The 2024 Draft Directions contained detailed provisions for entities to obtain 'in-principle' approval before applying for full authorization.[10] This two-stage process included: (i) a six-month validity period for in-principle approvals, (ii) a separate application format[11]; and (iv) an intermediate assessment mechanism. The 2025 Master Directions have removed this entire section on 'in-principle' approval. This significant change simplifies the authorization process by eliminating the 6-12 (six to twelve) month preliminary phase, potentially accelerating the timeline for new ETPs to become operational by providing a clearer regulatory pathway. This could also indicate the RBI’s desire to accelerate fintech and trading platform innovation.

Offshore ETPs

The 2024 Draft Directions included extensive provisions for offshore ETPs, including registration requirements, eligibility criteria, provisions for rupee derivative transactions, requirements for FATF member country incorporation, and regulatory supervision mandates.[12] The 2025 Master Directions have removed all specific provisions related to offshore ETPs. Additionally, the definition of “entity” in the 2024 Draft Directions included any person, whether resident or non-resident, while the 2025 Master Directions has removed this residency-based distinction and retained the definition of “entity” to mean any person, whether natural or legal. This revision is ambiguous and gives the government arbitrary power to govern offshore entities, even though the 2025 Master Directions have categorically removed references to offshore ETP operators. This change is the most significant policy shift between the 2024 Draft Directions and 2025 Master Directions, which could suggest that the RBI has shifted gears to focus on developing a robust domestic trading infrastructure first, and may regulate offshore ETPs through separate directives since they may pose systemic risks and uncontrolled capital flows, which are difficult to monitor and control. The removal of offshore provisions and streamlined domestic authorization creates a clear regulatory preference for India-based trading platforms.

Quarterly Reporting Format

The quarterly reporting format in Annex 3 of the 2024 Draft Directions has been revised in the 2025 Master Directions (Annex 2) with more detailed requirements for reporting market abuse and disruption of activities, including both dates of occurrence and dates of reporting to the RBI .[13] This change enhances transparency and accountability in market abuse reporting, allowing the RBI to better track both the timing of incidents and the timeliness of reporting.

Operational Requirements

Both the 2025 Master Directions and the 2024 Draft Directions require comprehensive risk management frameworks, but the 2025 Master Directions provides more detailed specifications, such as: (i) more explicit internal control framework requirements;[14] (ii) enhanced algorithmic trading oversight provisions;[15] (iii) stronger pre-trade and post-trade control obligations;[16] and (iv) improved model risk management for algo systems.[17] These enhancements reflect RBI’s recognition of increasing algorithmic trading complexity, safeguarding against erroneous transactions and incorporating global best practices and incident learnings.

Information Security Requirements

The 2024 Draft Directions specified requirements for information and cybersecurity controls.[18] The 2025 Master Directions maintain these requirements but place greater emphasis on business continuity planning,[19] disaster recovery arrangements,[20] specific Information Technology / Information Security audit requirements (Certified Information Systems Auditor certification or Computer Emergency Response Team-in empanelment),[21] and stronger data prevention and access controls.[22] This change reflects an increased regulatory focus on operational resilience in financial market infrastructure and stronger controls over sensitive trading data.

Lack of clarity on the inclusion of entities in the Alert List

The 2025 Master Directions do not provide any clarity on the regulatory ambiguity surrounding the inclusion of entities in the Alert List. The Alert List started with the limited objective of flagging entities not authorized to operate ETPs under the erstwhile 2018 Directions and cautioning residents from dealing with them. The Alert List has subsequently been expanded to include entities that promote unauthorized ETP through advertisements or ‘claiming to be providing training/advisory services’. The expansion of the Alert List, especially to entities providing such training services (which may be by way of running a simulated trading platform or facilitating paper trading) and who are not involved in operating an ETP facilitating trading in ‘eligible instruments’ as contemplated under the directions, has led to reputational harm for some of these institutions globally. In fact, it was expected that the 2025 Master Directions would  provide clarity on the status of such entities, given that globally, the prevalent practice is for paper trading platforms to not be regulated in the same manner as actual forex trading platforms.

Starting from February 2022, the Alert List has been updated periodically, with the last update in October 2024, totalling to 88 (eighty-eight) entities (some of whom have regulatory licenses and approvals in foreign jurisdictions), and the list is inclusive in nature. This implies that entities who are not specifically called out in the Alert List, cannot be construed as being approved by the RBI or being outside of the ambit of regulatory scrutiny.

Due Diligence Framework

The 2025 Master Directions extend to the RBI the authority to call for external grading/rating information, third-party platform assessments, and require cross-regulator/government agency information sharing.[23] This reflects RBI’s comprehensive assessment approach, including multi-source verification to reduce reliance on self-reported information, independent perspectives from external evaluators, leveraging expertise across regulatory bodies, and a broader ecosystem impact analysis. It is also noteworthy that it has been RBI’s historical practice to consult with other regulators for information sharing, which, in many instances, led to several entities being flagged off in the Alert List. However, the explicit inclusion of cross-regulator and cross-agency information sharing may signal that if a particular regulator flags off an entity to the RBI, such entity may find itself in the Alert List.

Selective Authorization Approach

The 2024 Draft Directions indicate that the RBI “may” be selective in granting authorizations for operating ETPs or for registering offshore ETPs.[24] However, the 2025 Master Directions emphasize this principle more prominently in the concluding section, stating that the RBI "will be selective in granting authorisation for operating ETPs”.[25] This change reinforces RBI's priority on robust and well-capitalized capabilities being authorized to operate ETPs and preference for proven entities with strong risk management.

CONCLUSION

Despite the fanfare surrounding the 2025 Master Directions, a pragmatic assessment reveals that the regulatory landscape for ETPs remains largely unchanged. While the RBI has indeed streamlined certain administrative processes and eliminated the cumbersome in-principle approval mechanism, the fundamental gates to market entry remain as formidable as ever. The conspicuous removal of offshore ETP provisions, rather than representing a liberalization, has merely reinforced the restrictive market entry barriers already prevalent in the 2018 Directions.

The Alert List mechanism persists, yet the 2025 Master Directions fail to codify transparent criteria for designation or delisting procedures. The absence of procedural due process safeguards and the continued conflation of "inclusive" versus "exhaustive" listing methodologies create an arbitrary enforcement paradigm that undermines legal certainty and regulatory predictability.

The enhanced due diligence framework, while procedurally more comprehensive, does not fundamentally alter the underlying risk-based assessment methodology or the discretionary powers vested in the regulatory authority.

For market participants, the practical reality remains unchanged: the ETP landscape continues to be characterized by high barriers to entry, regulatory unpredictability, and limited operational clarity. The 2025 Master Directions, while administratively refined, have not fundamentally altered the market dynamics or competitive landscape that existed under the 2018 framework. In essence, the RBI has rearranged the regulatory furniture without changing the house itself, leaving stakeholders with familiar challenges dressed in new procedural clothing.

[1] Section 45W r/w Section 45U of the Reserve Bank of India Act, 2025.

[2] Paragraph 9 of the RBI Statement and issued as part of the RBI’s Fourth Bi-monthly Monetary Policy Statement for 2017-18 dated October 04, 2017.

[3] Section 2(1)(iv) of the 2018 Directions defined ‘Eligible Instruments’ as “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”.

[4] Section 2(1)(ii) of the 2018 Directions.

[5] Section 1(c) of the 2025 Master Directions.

[6] Section 4 of the 2018 Directions.

[7] Section 5(2) of the 2018 Directions.

[8] Section 5(a), 2025 Master Directions.

[9] Section 5(a), 2024 Draft Directions.

[10] Section 6, 2024 Draft Directions.

[11] Annex 2, 2024 Draft Directions.

[12] Section 15, 2024 Draft Directions.

[13] Annex 2, 2025 Master Directions.

[14] Section 6(b), 2025 Master Directions.

[15] Section 6(b)(iii), 2025 Master Directions.

[16] Section 6(a), 2025 Master Directions.

[17] Section 6(b), 2025 Master Directions.

[18] Section 11, 2024 Draft Directions.

[19] Section 6(g), 2025 Master Directions.

[20] Section 6(g), 2025 Master Directions.

[21] Section 6(i), 2025 Master Directions.

[22] Section 6(j), 2025 Master Directions.

[23] Section 5(b), 2025 Master Directions.

[24] Section 16(b),2024 Draft Directions.

[25] Section 9(b), 2025 Master Directions.