On September 28, 2018, the Reserve Bank of India (“RBI”) has issued draft directions on Prohibition of Market Abuse and has invited feedback from interested from market participants and interested parties by October 31, 2018.

The Reserve Bank of India (Prohibition of Market Abuse) Directions, 2018 (“Draft Directions”) apply to all participants in markets for transacting or facilitating a transaction in the markets for financial instruments (“Market Participants”) with the exception of the transactions or other activities being carried on (i) in furtherance of public policy objectives; or (ii) being executed through the recognized stock exchanges under and in accordance with the regulations of the Securities and Exchange Board of India.

The Draft Directions have laid out the following prohibitions on Market Participants:

- Pursuant to paragraph 3, the Market Participants are prohibited from engaging or attempting to engage in market manipulation, which is defined under paragraph 2 (f) of the Draft Directions as follows:

“any transaction or any act of omission or commission by a market participant, or a group of market participants acting in collusion, that may result in a false or misleading impression as to the price of, or supply of or demand for, a financial instrument, carried out with the intention of making a financial gain or any other material benefit from such transactions or other actions. It shall also include any transaction or other action that may result in an artificial price of an instrument.”

Additionally, the Market Participants are prohibited from undertaking transactions on an electronic trading platform (ETP) with the intention to disrupt the functioning of the trading platform or to generate misleading information.

- They are also prohibited from undertaking any action or initiating any transaction with the intention to manipulate the process of calculation of bench mark rate or reference rate, or the sole and dominant intention to influence a benchmark rate or a reference rate under paragraph 4.

- The Market Participants shall not obtain or attempt to obtain or share any unpublished price sensitive information and shall not misuse any unpublished price sensitive information. The misuse of unpublished price sensitive information received by any Market Participant may either be the use of unpublished price sensitive information for material benefit or for trading on the account of such Market Participant.

- The Market Participants are also prohibited from intentionally creating or transmitting false or inaccurate information or from using any mass media to express their opinion to influence the price of any financial instrument or benchmark rate or reference rate. The transmission of false or inaccurate information is deemed to have been intentional if the Market Participant in question has not exercised due diligence on the accuracy of the same before such transmission.

- The Market Participants must maintain confidentiality of price sensitive customer information, irrespective of whether such information has been published.

All Market Participants are obligated to have a policy in place, in accordance with these Draft Directions, to monitor and prevent market abuse by individuals or groups in their organizations, which must be periodically reviewed. The Market Participants shall report any instance of market abuse, including any attempts, to the RBI regardless of the materialization of such abuse, and shall provide any data and/or information to the RBI in such format and within the time frame prescribed, as may be required.

Paragraph 7 of the Draft Directions lays down the regulatory action which shall be taken against those found guilty of market abuse, which includes temporary or permanent stoppage of access to markets in one or more instruments. The RBI shall provide reasonable opportunity to the accused Market Participant to defend its actions, and necessary action shall be taken with due regard to the underlying intentions and circumstances surrounding such Market Participant’s actions.