The Reserve Bank of India (RBI) on Friday issued draft directions for the prohibition of abuse in the fixed income markets, stating, among other things, that market participants, either acting independently or in collusion, shall not undertake any action with the intention to manipulate the process of calculation of a benchmark rate or reference rate.
The draft directions will be open for comments from market participants and other interested parties till October 31. The directions come in the wake of a steep crash in the share prices of listed financial institutions, even as the RBI had first mentioned them in its June policy meet.
As per the directions, market participants shall not engage, or attempt to engage, in market manipulation or undertake transactions on an electronic trading platform (ETP) with the intention to disrupt the functioning of the platform or generate misleading information.
They shall also not obtain, attempt to obtain or share any unpublished price-sensitive information. A market participant that has access to such information shall not use it for any material benefit, the central bank stated.
Market participants will not be allowed to use price-sensitive customer information for trading on its own account or on account of any other entity. They will be required to maintain confidentiality of such customer information.
They shall 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 shall 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,” RBI said in the directions.
Participants will also be barred from using mass media to express their opinion with an intention to influence the price of a financial instrument in which they have or intend to assume a financial interest. They will be required to put in place a clear and transparent policy to monitor and prevent market abuse within their organisations, which shall be reviewed periodically. The policy must also include procedures to establish individual responsibility.