In addition, a steering committee comprising representatives from the enabling organisations has been formed to drive the innovation sandbox, the Securities and Exchange Board of India (Sebi) said in a circular.
The committee would supervise the operations of the innovation sandbox. Also, it would process the applications submitted by sandbox applicants and approve or reject applications and assign lead enabling organisations.
Such lead enabling organisations would be responsible for onboarding the applicant post approval of the application and monitoring the applicant throughout the lifecycle of the sandboxing, the regulator noted.
Innovation sandbox facilitates access to an environment (testing facilities and test data) provided by enabling organisations like stock exchanges, depositories and qualified registrar and share transfer agents (QRTAs) wherein innovators (sandbox applicants) would be testing their innovations in isolation from the live market.
Sebi said the capital market in India has been an early adopter of technology and the regulator believes that encouraging adoption and usage of financial technology (FinTech) would have a profound impact on the development of the securities market.
FinTech can act as a catalyst to further develop and maintain an efficient, fair, transparent and inclusive securities market ecosystem.
To create an ecosystem which promotes innovation in the securities market, Sebi is of the view that startups including FinTech firms should have access to market related data, and test environments which are otherwise not readily available to them.
This will enable them to test heir innovations effectively before the introduction of such solutions in a live environment.
The objective of the innovation sandbox would be to promote innovation both in terms of new products and services as well as new ways of delivering existing products and services so as to create new opportunities in the securities market.
This would be achieved by giving access to both test data and test environment to financial institutions, FinTech firms and startups, including entities not regulated by Sebi including individuals.
With regard to stages of innovation sandbox, Sebi said during the first stage limited access to the test environment would be provided and there would be cap on the utilisation of resources in terms of processing power, memory, storage, among others.
During the second stage, the cap on the utilisation of resources would be removed, subject to availability of resources at that point of time.
Further, the regulator has also put in place eligibility criteria for both the stages.
Under the first stage, applicant must be an Indian citizen or entities registered in India and Know Your Customers (KYC) norms must be in line with the Central Know Your Customers Registry (CKYCR) and KYC Registration Agency.
In addition, the applicant should have a genuine need for testing the solution using resources available in the innovation sandbox. The applicant should provide justification of requirement to access the test data and test environment and also inform what dataset is required.
With regard to eligibility under the second stage, Sebi said the purpose of the project should be aligned with the objective of the innovation sandbox. The applicant should demonstrate that they have achieved adequate progress and are on track with their testing plan.
Further, the applicant should present their post-testing plan and the solution should offer identifiable benefits (direct or indirect) to investors and the capital market and financial sector as a whole.
An applicant would be eligible for stage-two after completing minimum 60 days in stage-one of testing. Applicants need to make a presentation before the steering committee for evaluation and entry to the second stage.
In respect of structure of the innovation sandbox, Sebi said one of the most important components of such facility is access to securities market related data, which will enable applicants to test and improve their FinTech solutions.
The datasets that will be made available to applicants need to be clearly defined and known to market participants.
Indicative datasets which may become part of the innovation sandbox are data on holding, KYC, transactions data like order log, trade log and mutual fund transactions.
The datasets would be historical and anonymised and also contain data related to episodic market events. Live data would not be made available to applicants.
Access to datasets would be provided in a phased manner starting with limited amount of data and based on validations, more exhaustive data would be provided to applicants.
The use of datasets would be governed by a comprehensive confidentiality agreement which include an 'end user agreement' clearly specifying that the datasets made available would not be sold or sublet or shared or misutilised in any manner with any other entities, and would be used only for the stated purpose.
The datasets to be used for testing solutions would be shared preferably through application program interface (APIs) which would be published and made available to all eligible applicants.