RBI issues directions on market manipulation

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The Reserve Bank of India (RBI), in order to regulate the markets for financial instruments, has issued the Reserve Bank of India (Prevention of Market Abuse) Directions, 2019 (directions), on 15 March 2019. The directions are applicable to all persons dealing in securities, money market instruments, foreign exchange instruments, derivatives or other instruments of like nature. However, banks and central government (acting in furtherance of monetary, fiscal or other policies) shall remain outside the purview of the directions.

The directions provide guidelines in relation to market manipulation, benchmark manipulation and misuse of information. It prescribes that a market participant (person transacting in the market, or facilitating a transaction in the market for financial instruments) in possession of “non-public price-sensitive information” (any information that is not publicly available and which may affect the price of a financial instrument if made publicly available) shall not use it for their own material benefit or for the benefit of others. Market participants shall also not be allowed to use “price-sensitive customer information” (any information pertaining to transactions or potential transactions of a customer that is not publicly available and which may affect the price of any financial instrument if made publicly available) for transacting on their own account in a way that may adversely affect any customer’s outcome in that transaction.

Furthermore, market participants shall not be permitted to create or transmit any false or inaccurate information or withhold timely information that may influence the price of any financial instrument. The market participant shall also check the veracity of information before transmitting it. If such due diligence is not undertaken then the transmission of false or inaccurate information shall be considered to have been done intentionally.

The directions also prescribe that a market participant liable for market abuse will be denied access to the market for a period not exceeding one month at a time after being provided with a reasonable opportunity to defend their actions. Moreover, market participants are required to report any instance of market abuse or attempted market abuse detected by them to the RBI promptly. Market participants shall also provide any data and information as required by the RBI in the format and within the prescribed timeline.

The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.