SEBI Proposes Regulatory Overhaul to Simplify Stock Exchange Rules

The Securities and Exchange Board of India (SEBI) has initiated a significant move to streamline the regulatory landscape for stock exchanges and clearing corporations. By proposing to eliminate obsolete provisions and consolidate existing rules, the regulator aims to enhance the ease of doing business within India's capital markets.

Consolidating Frameworks for Efficiency

A central pillar of SEBI's proposal is the transition toward a more unified and less fragmented regulatory structure. Currently, market participants must navigate a complex web of various circulars. To address this, SEBI plans to issue a single Master Circular for stock exchanges by merging provisions that currently separate stock exchanges and commodity derivatives exchanges.

Furthermore, the regulator intends to create a dedicated Master Circular for clearing corporations. Recognizing the increasing reliance on digital infrastructure, SEBI also proposes a consolidated circular to cover common Information Technology (IT) requirements applicable across all Market Infrastructure Institutions (MIIs). This shift toward a principles-based framework is designed to reduce duplication and provide greater operational flexibility.

Reducing Compliance Burdens and Redundancy

In a major push to reduce the "compliance fatigue" often experienced by market entities, SEBI has suggested a significant reduction in periodic reporting. The regulator aims to discontinue reports that have become redundant due to evolving market dynamics or shift the oversight of certain reports to the internal committees of MIIs.

Specific operational changes include:

  • Direct Market Access (DMA): Discontinuing the mandatory registration requirement for investment managers providing DMA services.
  • Smart Order Routing (SOR): Introducing a streamlined, single-window registration framework for brokers offering SOR services.
  • Derivatives Trading: Discontinuing the Close-to-Money (CTM) norms for option contracts to simplify trading mechanics.
  • Audit Frameworks: Reviewing the existing system and network audit protocols currently governing MIIs to ensure they remain relevant to modern technological standards.

Strengthening Investor Protection and Market Oversight

Beyond administrative simplification, SEBI is revisiting several norms that impact market transparency and investor security. The consultation paper suggests a review of disclosure requirements for investors in the commodity derivatives segment and a revisit of existing position limits across various products.

To ensure a more cohesive safety net for market participants, SEBI has also proposed merging the Investor Protection Funds (IPF) for the equity and commodity segments. Additionally, the regulator plans to update the client code modification framework to improve accuracy and ease of correction.

This proposal marks the fourth in a series of reviews by SEBI aimed at modernizing the regulatory environment. The regulator has invited public comments on these proposals, which will be accepted until July 13, 2026, before a final framework is notified.

Key Takeaways

  • Unified Rulebook: SEBI aims to consolidate multiple circulars into single Master Circulars for stock exchanges, clearing corporations, and IT requirements to reduce complexity.
  • Streamlined Compliance: The proposal includes cutting redundant periodic reports and simplifying registration processes for DMA services and Smart Order Routing.
  • Integrated Protection: Plans are in place to merge investor protection funds for equity and commodity segments to create a more efficient safety mechanism.