New Delhi [India], April 29 (ANI): The Reserve Bank of India (RBI) has issued master directions for entities operating on electronic trading platforms, aiming to regulate and streamline the activities in electronic trading.
The move comes as part of the RBI’s ongoing efforts to enhance transparency and efficiency in financial markets.
According to the guidelines, these directions will not apply to electronic systems operated by scheduled commercial banks and standalone primary dealers for transactions in eligible instruments, where the bank or primary dealer operating the electronic system is the sole quote.
The exemption is specifically granted to scheduled commercial banks and standalone primary dealers for transactions in eligible instruments where they act as the sole quote provider. This provision is likely to facilitate smoother trading operations for these entities.
The master directions also provide a definition of ‘Algorithmic trading’ or ‘Algo trading,’ which refers to any trade originated by a software program using automated execution logic.
This definition aims to clarify and standardize the understanding of algorithmic trading within the industry.
Algorithmic trading has gained significant traction in financial markets due to its speed and efficiency in executing trades.
However, concerns have been raised regarding the potential risks associated with algorithmic trading, such as market manipulation and sudden price fluctuations.
By providing a clear definition of algorithmic trading, the RBI aims to establish a framework that enables effective oversight and regulation of such trading activities.
The issuance of these master directions underscores the RBI’s commitment to fostering a well-regulated and transparent financial ecosystem.
It also reflects the central bank’s proactive approach to adapting regulations to keep pace with technological advancements in the financial sector.
Market participants and entities operating on electronic trading platforms are expected to adhere to these guidelines to ensure compliance with regulatory requirements and to promote the integrity and stability of the financial markets. (ANI)
RBI directs review of unfair interest practices by financial institutions
New Delhi [India], April 29 (ANI): In a recent directive issued by the Reserve Bank of India (RBI), all commercial banks, primary (urban) co-operative banks, state co-operative banks, district central co-operative banks, non-banking financial companies (NBFCs), including microfinance institutions and housing finance companies, have been instructed to review their practices regarding the charging of interest.
According to RBI, the directive, effective immediately, aims to address concerns over certain unfair practices observed during RBI’s onsite examination of regulated entities (REs) for the period ended March 31, 2023.
The guidelines on Fair Practices Code (FPC) issued to various REs since 2003 emphasize fairness and transparency in charging interest by lenders while providing them with freedom in their loan pricing policy.
However, RBI identified instances of lenders resorting to non-standard practices in charging interest during its examination, prompting the issuance of this directive.
Lenders were found charging interest from the date of loan sanction or agreement, rather than from the actual disbursement of funds to the customer.
Similarly, interest was charged from the date of the cheque in cases where the cheque was handed over to the customer several days later.
In cases where loans were disbursed or repaid during the month, some REs were found charging interest for the entire month instead of only for the period the loan was outstanding.
Some REs were observed collecting one or more instalments in advance but reckoning the full loan amount for charging interest.
These practices are deemed inconsistent with the principles of fairness and transparency in customer dealings, raising serious concerns for the RBI.
The supervisory teams of the RBI have advised REs to refund excess interest and other charges to customers wherever such practices have been identified.
Furthermore, REs are encouraged to transition to online account transfers instead of issuing cheques for loan disbursals, aiming to streamline processes and enhance efficiency.
In light of these observations, all REs are directed to review their practices regarding the mode of disbursal of loans, application of interest, and other charges.
They are instructed to take corrective actions, including system-level changes, to address the highlighted issues. (ANI)
