30 May 2025
In this update:
Partner: Shruti Rajan, Senior Associate: Khyati Goel, Associate: Yash Sangani
In April 2024, the International Financial Services Centres Authority (IFSCA) introduced the Remote Trading Participant (RTP) framework to improve access to GIFT City’s capital markets infrastructure, enabling foreign entities to engage in proprietary trading without a physical presence in India. Initially, this framework was designed for entities regulated in jurisdictions that were signatories to the International Organization of Securities Commissions Multilateral Memorandum of Understanding or had a bilateral Memorandum of Understanding with IFSCA. Entities from countries flagged by the Financial Action Task Force for anti-money laundering were barred and entities incorporated in India were excluded.
Responding to feedback from overseas markets and exchanges and in a move to encourage broader participation, the IFSCA issued a circular on 11 February 2025 amending the RTP eligibility criterion for stock exchanges within the International Financial Services Centre (IFSC). Unregulated entities can now qualify as RTPs if they are members of recognised stock exchanges across 28 jurisdictions specified by IFSCA, significantly widening the pool of eligible participants. Other provisions remain unchanged: RTP activities are still limited to proprietary trading in cash-settled derivatives, and a tie-up with an IFSCA-registered clearing member is mandatory.
This move should result in increased participation by a more diverse set of global participants and enhance the liquidity and depth of GIFT City’s derivatives market.
The Reserve Bank of India (RBI) rolled out the Forward Contracts in Government Securities Directions, 2025, effective from 2 May 2025, to regulate bond forwards in the Over-the-Counter (OTC) market. A bond forward, classified as a rupee interest rate derivative, involves an agreement between two parties to buy or sell a government security at a predetermined price on a specified future date. This framework aims to enhance market efficiency and transparency in trading such instruments.
Eligible participants include residents and non-residents who can invest in government securities under the Foreign Exchange Management (Debt Instruments) Regulations, 2019. Also, entities classified as non-retail users may enter into bond forward transactions as users. Scheduled commercial banks, excluding small finance banks, payment banks, local area banks, and regional rural banks, who are explicitly excluded from market-making activities, and standalone primary dealers are designated as market-makers.
Market-makers can take long positions without limits and covered short positions in bond forwards. Entities permitted to engage in short sales under existing regulations may also take uncovered short positions, provided the underlying government security is eligible for short selling. Participants, including market-makers, may opt for physical delivery or cash settlement, with mandatory reporting to the Trade Repository of the Clearing Corporation of India Ltd. The guidelines also establish prudential norms, risk management protocols, and compliance with RBI’s margin requirements.
The introduction of the bond forward framework marks an important step towards deepening India’s fixed income markets. The framework should promote greater price discovery and hedging flexibility, resulting in a more transparent and liquid OTC bond market that should enhance investor confidence in India’s financial markets.
The launch of the Specialized Investment Funds (SIF) framework by Securities and Exchange Board of India (SEBI) on 27 February 2025 represents a pivotal development in India’s investment management ecosystem. Designed to bridge the divide between the structured flexibility of Mutual Funds (MF) and the tailored sophistication of Portfolio Management Services (PMS), SIFs cater to high-net-worth and institutional investors. This builds on SEBI’s risk-based regulatory progression—evident in MFs, PMS, and Alternative Investment Funds (AIF)—to address the evolving needs of a maturing market.
SIFs empower registered Mutual Funds to offer advanced strategies, including equity-oriented, debt-oriented, and hybrid investments, subject to rigorous eligibility criteria for Asset Management Companies (AMC). These criteria are categorised into two routes:
SEBI also mandates distinct branding to maintain transparency. SIFs must adopt unique names and logos, with a five-year transition leveraging sponsor branding, and maintain a dedicated webpage, distinguishing them from conventional MFs.
The introduction of the SIF Framework offers greater flexibility to mutual funds and provides high-net-worth and institutional investors with better access to more sophisticated and customised strategies. This benefits both clients and SIF providers and underscores SEBI’s dual focus on investor protection and market innovation.
In the first quarter of 2025, SEBI introduced key rules to manage the increasing use of Artificial Intelligence (AI) in the securities market. These updates, rolled out in January and February 2025, focus on balancing innovation with investor protection through clear accountability and transparency.
In January 2025, SEBI released guidelines for Investment Advisers (IA) and Research Analysts (RA) on using AI. IAs and RAs are fully responsible for keeping client data secure and ensuring that AI-based research is reliable. The guidelines require them to inform clients about how AI is used to provide their services.
SEBI updated the SEBI (Intermediaries) Regulations, 2008, in February 2025, adding rules for AI use by regulated entities. Whether using proprietary or third-party AI tools, these entities are accountable for protecting investor data and ensuring compliance. This covers AI use in trading, investments, strategies, and internal operations.
SEBI’s AI framework introduces enhanced compliance requirements for market participants, holding them fully accountable for the secure and transparent use of AI in their operations. While this increases the compliance burden on market participants, it should also enhance transparency and investor confidence in the Indian securities markets.
India’s securities market is expanding rapidly, and the rise of unregulated entities has made it challenging for investors to access dependable advice. To address the shortfall in the number of IAs and RAs, SEBI has introduced guidelines for IAs and RAs, aimed at increasing the reach of professional services while streamlining compliance. These guidelines require advisers to maintain a deposit between INR 1 lakh and INR 10 lakh, based on the number of clients they serve, to enhance accountability. Professionals can now register to provide both advisory and research services, but they must keep client groups distinct for each role to ensure clarity and avoid conflicts.
The guidelines also open the door for part-time professionals, such as teachers or accountants, to register as part-time IAs and RAs, provided they comply with the same regulatory standards.
SEBI has also clarified the scope of consideration for RAs under Regulation 2(1)(u) read with Regulation 2(1) (fa) of SEBI (Research Analysts) Regulations, 2014 (RA Regulations). It has confirmed that both direct and indirect consideration are covered. This means that even if no monetary fee is charged but any other form of economic benefit, such as offering model portfolios, will be deemed as research services and must be appropriately disclosed.
To complement these structural reforms, SEBI has also revised the fee structure for IAs and RAs to make their services more accessible and cost-effective. Building on its regulations from 2013 and 2014, these guidelines seek to broaden the pool of qualified advisers, enhance investor protection, and foster a transparent, efficient market. This should also help to increase the pool of IAs and RAs. While the increase in deposit requirements and compliance obligations may present challenges for individual RAs—particularly smaller practitioners—the clarification on what constitutes ‘consideration’ is a welcome step. It strengthens the regulatory net by ensuring that any form of economic benefit, however indirect, falls within the purview of the RA Regulations. In doing so, SEBI continues to align regulatory oversight with the evolving needs of the market, fostering informed decision-making and long-term market stability.
SEBI recently introduced two significant amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015, aimed at strengthening market oversight and regulatory enforcement.
The first amendment, in December 2024, expands the definition of ‘connected persons’ to include anyone who had any form of association in the preceding six months, whether through regular communication or professional contact, and those living in the same household. It also replaced ‘immediate relatives’ with the broader category of ‘relatives’, covering a wider circle of family members. The rules now stipulate that anyone with Unpublished Price-Sensitive Information (UPSI) is an insider, shifting the burden of proof by requiring the accused in insider trading cases to prove they did not have UPSI when trading.
The second amendment, in March 2025, broadened UPSI’s scope by providing a list of events or information that could significantly affect stock prices, aligned with Paragraph A of Part A of Schedule III of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Paragraph B’s materiality standards.
SEBI also addressed how companies handle UPSI in the Structural Digital Database (SDD), a system maintained by listed entities to track sensitive information. For UPSI coming from outside the company, the amendment requires information to be recorded in the SDD within two days of receiving it, offering a clear timeline for compliance. Additionally, when UPSI originates externally, listed entities no longer have to close the trading window for designated persons and their relatives.
Together, these amendments to the definition of UPSI strengthen the regulatory framework governing insider trading in India by expanding the scope of insiders and refining the definition of UPSI. This should reinforce investor confidence for both domestic and foreign participants by highlighting SEBI’s commitment to increasing the integrity of financial markets in India.
The recent reforms by the IFSCA, RBI, and SEBI are all important steps toward strengthening India’s financial markets. From expanding access to GIFT City and regulating bond forwards to introducing SIFs and AI guidelines, these initiatives enhance market efficiency and promote ease of doing business. At the same time, the regulator is being mindful of investor protection and transparency, borne out through the amendments to the insider trading framework aimed at checking market abuse. Collectively, they reflect a progressive regulatory approach aligned with the evolving needs of a growing investor base and a renewed onus on ensuring the accountability of regulated intermediaries.
If you require any further information about the material contained in this newsletter, please get in touch with your Trilegal relationship partner or send an email to alerts@trilegal.com. The contents of this newsletter are intended for informational purposes only and are not in the nature of a legal opinion. Readers are encouraged to seek legal counsel prior to acting upon any of the information provided herein.
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