Participants in markets for financial instruments will face regulatory action, including temporary or permanent stoppage of access to markets in one or more instruments, if found guilty of market and benchmark manipulation and misuse of information, according to Reserve Bank of India’s Draft Directions on Prohibition of Market Abuse.

The directives apply to participants/agencies dealing in securities, money market instruments, foreign exchange instruments, derivatives or other similar instruments.

However, no action will be taken without providing reasonable opportunity to the market participant concerned to defend its actions or without giving due regard to underlying intentions and circumstances surrounding its actions.

As per the draft directions, market participants should not engage, or attempt to engage, in market manipulation. Further, they should not undertake transactions on an electronic trading platform (ETP) with the intention to disrupt the functioning of the trading platform or generate misleading information.

On benchmark manipulation, the RBI said market participants, either acting independently or in collusion, should not undertake any action with the intention to manipulate the process of calculation of a benchmark rate or reference rate. Also, no market participant should carry out a transaction or initiate any action with the sole or dominant intention to influence a benchmark rate or a reference rate.

Misusing info

When it comes to misuse of information, the central bank observed that market participants should not obtain, or attempt to obtain, or share any unpublished price sensitive information. The participant in receipt of unpublished price sensitive information should not use it for any material benefit.

Market participants should not use price-sensitive customer information for trading on its own account or on account of any other entity. They should also maintain confidentiality of price sensitive customer information.

According to RBI, market participants should not intentionally create or transmit false or inaccurate information that influences or is likely to influence the price of any financial instrument or any benchmark rate or reference rate.

Transmission of false or inaccurate information will be deemed to have been done intentionally by a market participant if it had not exercised due diligence as to the veracity of the information before transmitting.

Market participants should not use any mass media to express their opinion with an intention to influence the price of any financial instrument in which they have, or intend to have a financial interest.

Organisation policy

The RBI said all market participants should have in place a clear and transparent policy to monitor and prevent market abuse within their organisations, consistent with its directions. The policy should also include procedures to establish individual responsibility. Market participants are required to report any instance of market abuse detected by them (materialised or attempted) to the central bank promptly.

Market participants will also have to provide any data and/or information as required by the RBI in the format and within the time frame prescribed.

While its directions relating to Prohibition of Market Abuse will apply to all participants in markets for financial instruments, the RBI said it will not apply to transactions or other activities being carried on in furtherance of public policy objectives or those executed through the recognised stock exchanges under and in accordance with the regulations of the Securities and Exchange Board of India (SEBI).

The RBI has invited comments on the draft directions from market participants and other interested parties by October 31, 2018.

comment COMMENT NOW