20 April, 2019
RBI (Prevention of Market Abuse) Directions, 2019
RBI has, on March 15, 2019, issued the RBI (Prevention of Market Abuse) Directions, 2019 (‘PMA Directions’), to all persons dealing in securities, money market instruments, foreign exchange instruments, derivatives or other instruments of similar nature as RBI may specify from time to time, with a view to prevent market abuse. The PMA Directions have come into force on March 15, 2019. The key features of the PMA Directions are as follows:
i. Market manipulation: The PMA Directions stipulate that persons transacting or facilitating a transaction in the markets for financial instruments (‘Market Participants’)
will not: (i) engage in any transaction or any act of omission or commission which may result in, or seek to convey, 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 an undue financial gain or any other material benefit. This includes any transaction or action which may result in, or is intended to result in, an artificial price of a financial instrument; and/or (ii) undertake transactions on an electronic trading platform which may disrupt or delay its functioning.
ii. Benchmark manipulation: Market Participants will not undertake and/or initiate any action with the intention of manipulating the calculation and/or influencing a benchmark rate or a reference rate.
iii. Misuse of information: Market Participants will not: (i) use any non-public pricesensitive information (i.e., information which is not publicly available, and which may affect the price of a financial instrument if made publicly available) for any material benefit to itself or to others; (ii) use any price sensitive customer information (i.e., information pertaining to transactions or potential transactions of a customer which is not publicly available, and which may affect the price of any financial instrument if made publicly available) for any transaction on their own account in a manner which adversely affects the outcome for the customer; and
(iii) intentionally (i.e., without exercising due diligence as to the veracity of the information) create or transmit false or inaccurate information or withhold timely information which is required to be reported or made public, which influences or is likely to influence the price of any financial instrument.
iv. Monitoring, compliance and reports: Market Participants must report any instance of market abuse or attempted market abuse detected by them to RBI promptly and must provide any data and/or information as may be required by RBI in this regard.
v. Regulatory action for market abuse: Market Participants committing market abuse will be liable to be denied market access in one or more instruments for a period which may not exceed one month at a time. All instances of such action will be made public by RBI.
Revised Framework for Trade Credits
RBI has, pursuant to the circular dated March 13, 2019, introduced changes and rationalised the extant framework for trade credits (‘TC’), with effect from the date of the circular. Some of the key additions and amendments introduced by the circular are set out below.
i. TC can now be raised in any freely convertible foreign security as well as in Indian Rupees.
ii. The circular has increased the limits under which TC could be raised under the automatic route and provides for a higher limit for sectors such as for oil / gas refining & marketing, airline and shipping where the transaction value is generally larger, and has specified the persons who can grant TC depending on the type of TC proposed to be availed.
iii. The circular has aligned the tenure of TC for import of capital goods, non-capital goods and shipyards / shipbuilders with the changes in the minimum average maturity for external commercial borrowings.
iv. The circular has also reduced the all-in cost ceiling for raising TC and borrowers availing TC are now permitted to hedge their exposure created by the TC.
v. The circular now permits change of currency of TC from one freely convertible foreign currency to any other freely convertible foreign currency as well as to Rupees, but not from Rupees to any freely convertible foreign currency.
In addition to guarantees, the circular now permits creation of security over certain movable and immovable assets for the TC.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
