Sagus Speaks - June 2025 | Part II

REGULATORY AND POLICY UPDATES

RBI (Electronic Trading Platform) Directions, 2025

The Reserve Bank of India ("RBI") has notified the Master Directions – RBI (Electronic Trading Platforms) Directions, 2025 ("ETP Directions") on 16.06.2025¹ to provide a revised regulatory framework for Electronic Trading Platforms ("ETPs") in supersession of the Electronic Trading Platforms (Reserve Bank) Directions, 2018. The ETP Directions are a step forward to protect the public interest by strengthening financial market systems and supporting the orderly development of financial ecosystems, especially with respect to emerging technologies. The ETP Directions have become applicable with immediate effect.

The salient features of the ETP Directions are as follows-

1. Definition and scope of ETPs: The ETP Directions define ETP as any electronic system, other than a recognized stock exchange, operated by an operator authorized by RBI on which transaction in eligible instruments (securities, money market instruments, foreign exchange instruments, derivatives, or other instruments of like nature as may be specified by RBI) are contracted. However, the ETP Directions shall not apply to ETPs of scheduled commercial banks or standalone primary dealers for transactions wherein they are the sole quote/price provider and a party to all transactions contracted on the ETP. All authorization granted under the 2018 Directions shall be deemed to have been taken under the ETP Directions.
   
   
2. Eligibility Criteria for authorization of ETPs:
   
   1. The entity shall be incorporated in India, its shareholding by non-residents shall conform to the Foreign Exchange Management Act, 1999, along with other applicable laws, and it shall have a minimum experience of 3 (three) years in operating trading infrastructure in the financial market.
   2. The entity should have and shall maintain a minimum net worth of at least INR 5 Crores.
   3. The entity shall obtain and maintain robust infrastructure to support its operations and manage the associated risks with the capacity to disseminate trade information on a real-time basis.
   
   The entities satisfying the eligibility criteria shall submit application to RBI for grant of authorization to operate an ETP. RBI holds the power to grant, reject, or cancel authorizations of ETP based on compliance and public interest.
   
   
3. Operating Framework: The ETP Directions have prescribed the following requirements for the ETP operators:
   1. provide fair and objective membership criteria, due diligence before onboarding members, identification through permanent account numbers and legal entity identifiers, a documented liability framework for processing and execution of orders and risk management and controls and fair and nondiscriminatory access to pre-trade and post-trade information;
   2. provide a comprehensive risk management framework with internal control mechanisms covering all aspects for proper identification and prudent management of operational risks, including access controls, segregation of ETP from other financial infrastructure, non-discretionary and orderly treatment for all trades, appropriate pretrade and post trade controls to reduce erroneous transactions, transparent and non-discriminatory access to algorithmic systems, exigency control mechanisms and dispute resolution mechanisms;
   3. implement controls to maintain market integrity and monitor trading activity both on a real-time and post facto basis;
   4. identify and make prescribed disclosures of transactions involving related parties or group agencies to the RBI as prescribed in the ETP Directions; and
   5. implement safeguards for outsourcing of operations, business continuity and disaster recovery, information security, regular IT/IS audits, and confidentiality and security of stored data.
4. Reporting requirements: The ETP operator shall provide quarterly reports on the functioning of the platform and annual compliance reports to RBI, reports on transaction information to trade repositories/prescribed reporting platforms, and prompt information on events resulting in disruption of services/market abuse to RBI.
   
   
5. Termination of operation: ETP operators may terminate their operations with prior approval of the RBI by surrendering the letter of authorization granted by the RBI and complying with the terms prescribed in this regard.

CERC issues Draft CERC (Power Market) (First Amendment) Regulations, 2025

The Central Electricity Regulatory Commission ("CERC") has issued the Draft CERC (Power Market) (First Amendment) Regulations, 2025² ("Draft Power Market Amendment") amending the CERC (Power Market) Regulations, 2021 ("Principal Power Market Regulations") on 17.06.2025 and has invited comments/ suggestions/ objections from stakeholders by 14.07.2025.

The key highlights of the Draft Power Market Amendment are as follows:

1. Definitions for 'Connectivity and GNA Regulations', 'Designated Consumer', 'OTC Guidelines', 'Virtual Power Purchase Agreement ("VPPA")', and 'VPPA Price' have been introduced, and certain existing definitions have been revised.
2. The scope of over the counter ("OTC") market contracts has been expanded to include delivery-based energy contracts, capacity contracts, renewable energy certificates, VPPAs, battery energy storage system contracts, banking of power, and other contracts as approved by the CERC.
3. OTC platforms shall facilitate transactions of the types of contracts listed in Regulation 4(2).
4. The minimum net worth of applicant seeking registration of OTC platform, has been increased to INR 35 Crores. Further, the validity period of registration has been increased to 10 years.
5. CERC has been enabled with power of inspection, inquiry, or audit of OTC platforms through its officers or third-party agencies, with binding cooperation obligations.

SEBI's board meeting focused on optimizing regulations for ease of doing business

The Securities and Exchange Board of India ("SEBI") convened its 210th Board Meeting on 18.06.2025, in Mumbai, where amendments to the existing SEBI regulations were approved, as detailed in Press Release PR No. 33/2025³ . Key decisions include:

1. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 ("SEBI ICDR") Amendments – Ease of Doing Business Measures:
   1. the one-year minimum holding period exemption for Offer for Sale eligibility to equity shares arising from conversion of fully paid-up Compulsorily Convertible Securities ("CCS") received under approved schemes will be extended. Previously, this exemption was limited only to equity shares directly acquired under such schemes, creating barriers for certain investors in public issues.
   2. 'Relevant persons' under ICDR are now permitted to contribute equity shares arising from CCS conversion toward minimum promoter contribution ("MPC") requirements. Earlier, while promoters could use such converted shares for MPC, relevant persons lacked this flexibility.
   3. Founders classified as promoters to retain and exercise share-based benefits (including ESOPs) received at least one year before filing the Draft Red Herring Prospectus, even post-Initial Public Offering (IPO). The existing regulation mandated complete liquidation of such benefits before going public, creating hardship for founder-promoters.
   4. These approvals support companies undertaking reverse flipping (shifting incorporation from foreign to Indian jurisdiction) and provide greater flexibility for founder-promoters regarding share-based compensation structures.
2. The Social Stock Exchange framework will be broadened to include trusts under the Indian Registration Act, 1908, charitable societies under state registration statutes, and Section 25 companies under the erstwhile Companies Act 1956 as not-for-profit organizations ("NPO"). Social impact assessment organization require empanelment with professional bodies (ICAI/ICSI/ICMAI) and mandating at least two full-time social impact assessors with 3+ years of experience. Additionally, NPO must now raise funds within two years of registration (failing which registration lapses), and eligible activities have been aligned with Schedule VII of the Companies Act, 2013 for CSR activities.
3. SEBI has relaxed the earlier requirement mandating separate legal entities for unregulated activities. Merchant Bankers can now undertake activities regulated by other financial sector regulators or unregulated fee-based financial services within the same entity, subject to SEBI-specified conditions. A two-tier categorization, i.e., Category 1 (INR 50 crore net worth, all activities) and Category 2 (INR 10 crore net worth, excluding main board equity issues) is introduced, with specific revenue thresholds and liquid net worth requirements of 25% of minimum net worth.
4. SEBI has relaxed the hiving-off requirement, allowing Debenture Trustees ("DTs") to conduct unregulated activities within the same entity under specified conditions. Changes include insertion of specific rights for DTs and corresponding issuer obligations under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, provision for standardized model debenture trust deed formats to ensure uniformity, and clarification of recovery expense fund utilization guidelines to address reimbursement difficulties faced by DTs.
5. SEBI facilitates operational efficiency by allowing related parties of sponsors who are qualified institutional buyers to be classified as "public" unitholders, enabling HoldCos to adjust their negative cash flows against SPV cash flows before distribution to REITs/InvITs (previously required 100% distribution), aligning various report submission timelines with financial results deadlines, and reducing minimum allotment lot for privately placed InvITs to INR 25 lakhs in primary market to match secondary market trading lots.
6. SEBI has approved co-investment schemes within Alternative Investment Funds ("AIF") structure as an alternative to the existing portfolio management services (PMS) route, allowing Category I & II AIFs to offer co-investment opportunities to their accredited investors (AIs) in the same unlisted companies where the main AIF scheme invests. This addresses operational issues like dual registration requirements and excessive shareholder management for investee companies. Additionally, the framework would mandate that angel fund investors must be AIs (with independent verification), while grandfathering existing non-AI investments with a one-year transition period.
7. For angel funds, investment limits are revised from INR 25 lakh – INR 10 crore to INR 10 lakh – INR 25 crore per investee company, removing the 25% concentration limit, allowing contributions from more than 200 AIs, and permitting follow-on investments in companies that are no longer start-ups, while maintaining fairness through mandatory offer of each opportunity to all investors and requiring minimum sponsor/manager continuing interest.
8. Portfolio managers can now issue disclosure documents through SEBI circulars instead of gazette notifications, with restructured dynamic and static sections for operational convenience.
9. A one-time settlement scheme will be introduced for migrated Venture Capital Funds (VCFs) facing winding-up delays, with settlement amounts ranging INR 1 lakhs to INR 6 lakhs plus annual delay penalties.
10. Investment advisors and research advisors can now use liquid mutual funds and overnight funds as alternatives to bank fixed deposits for regulatory compliance, addressing operational difficulties in fixed deposit account opening and lien marking procedures.

RBI (Project Finance) Directions, 2025

The RBI has released the RBI (Project Finance) Directions, 2025 ("Directions") bearing notification no. RBI/2025-26/59 dated 19.06.2025⁴ to provide a harmonized framework for financing of projects in infrastructure and non-infrastructure sectors (including commercial real estate ("CRE") and CREresidential housing ("CRE-RH")) by regulated entities and lay down the revised regulatory treatment of projects upon change in the Date of Commencement of Commercial Operation ("DCCO"). These Directions shall come into effect on 01.10.2025 ("Effective Date").

The salient features of these Directions are as follows:

1. Scheme: The Directions provide for a scheme of anticipatory risk control by disciplining project risk before it becomes a default by building automatic risk governance provisions indexed to the occurrence of credit events into the capital structure instead of only post facto damage control measures indexed to defaults.
2. Inclusion of all NBFCs: The Directions are applicable to all commercial banks (excluding payments bank, local area banks, and regional rural banks), NBFCs, primary (urban) cooperative banks, and all India financial institutions. The Directions have rectified the regulatory arbitrage in project finance by NBFCs and closed the probability of informal practices and greyzone structures.
3. Exclusions: The Directions exclude projects that have achieved financial closure before the Effective Date, unless a resolution of a fresh credit event and/or change in material terms and conditions of the loan agreement is required, after the Effective Date.
4. Definition of Project Finance: The Directions provide that for a loan to qualify as project finance, at least 51% (fifty-one percent) of the source of repayment should comprise cash flow generated from the project, and the lenders should have a common agreement with the debtor.
5. Project Finance Phases: The Directions have structured the project finance lifecycle into three phases, namely the design phase (from project genesis to financial closure), the construction phase (from financial closure until DCCO), and the operational phase (from DCCO until full repayment).
6. Minimum exposure requirement: The Directions provide that in case of project finance through consortiums/ multiple lending arrangements, the exposure floor for each lender in case of facilities up to INR 1500 Crores shall be at least 10% of the aggregate exposure of the project and in case of facilities of more than INR 1500 crores, the exposure floor per lender shall be either INR 150 Crores or 5% of the aggregate exposure, whichever is higher.
7. Monitoring: The Directions require that the lenders shall monitor the performance of the project and buildup of stress on an ongoing basis through project specific databases and report stress signals in construction phase projects on a weekly basis to the Central Repository of Information on Large Credit (CRILC) and conduct a review within 30 (thirty) days if a credit event is spotted and initiate a resolution plan well in advance.
8. Restructuring Mechanism: The Directions provide for a framework of resolution plans involving extensions of DCCO by up to 3 (three) years for infrastructure projects and up to 2 (two) years for non-infrastructure sector in addition to the collective resolution mechanisms provided under Prudential Framework for Resolution of Stressed Assets, 2019, as amended from time to time.
9. Cost overruns: The Directions provide that cost overruns of up to a maximum of 10% of the original project cost resulting from the extension of DCCO may be financed through the standby credit facility sanctioned during financial closure or additional funding as part of a resolution plan, provided the financial parameters of the borrower remain unchanged or enhanced in favour of the lender along with other specified conditions.
10. Change in Scope and Size: The Directions also provide for DCCO extension in case of a change in scope and size of the project where the resultant rise in project cost is 25% or more of the original project cost, subject to specified conditions.
11. Provisioning Requirements: The Directions provide clear provisioning norms for standard assets for both construction and operational phase projects in CRE, CRE-RH and all other sectors.
12. Disclosures: The Directions require the lenders to make appropriate disclosures in their financial statements, as per format of 'Notes to Account' specified in the Directions.

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Footnotes

1. RBI (Electronic Trading Platform) Directions, 2025.

2. Draft CERC (Power Market) (First Amendment) Regulations, 2025.

3. SEBI Board Meeting Outcomes.

4. RBI (Project Finance) Directions, 2025.