SEBI Proposes Simpler Regulatory Framework for Stock Exchanges

The Securities and Exchange Board of India (SEBI) has unveiled a strategic plan to overhaul the regulatory framework governing stock exchanges and clearing corporations. This move, part of a broader ease-of-doing-business initiative, aims to streamline compliance by eliminating obsolete provisions and consolidating complex rules.

Consolidating Frameworks for Market Infrastructure Institutions

In a significant move to reduce regulatory clutter, SEBI has proposed the issuance of streamlined master circulars. The regulator plans to merge existing provisions for stock exchanges and commodity derivatives exchanges into a single, unified master circular.

Furthermore, SEBI intends to issue a separate master circular specifically for clearing corporations. To address the technical side of operations, a consolidated circular will be introduced to cover common information technology (IT) requirements applicable to all Market Infrastructure Institutions (MIIs). This structured approach is designed to provide more clarity and reduce the burden of navigating multiple, overlapping documents.

Streamlining Compliance and Reporting Requirements

A core objective of this overhaul is to minimize redundant paperwork. SEBI has proposed a reduction in the number of periodic reports that MIIs must submit to the regulator. This will be achieved by discontinuing reports that have become obsolete and shifting the oversight of certain reports to the internal committees of the MIIs themselves.

Beyond reporting, several specific operational changes are on the table:

  • Direct Market Access (DMA): Discontinuing the requirement for registration of investment managers providing DMA services.
  • Smart Order Routing (SOR): Introducing a single-window registration framework for brokers offering SOR services.
  • Option Contracts: Removing the close-to-money (CTM) norms for option contracts.
  • Audit Framework: A comprehensive review of the existing system and network audit framework for MIIs.

Enhancing Investor Protection and Market Efficiency

The consultation paper also touches upon critical areas of market integrity and investor safety. SEBI has suggested reviewing disclosure requirements for investors participating in commodity derivatives and revisiting the norms that govern position limits across various products.

In an effort to simplify the safety nets for traders, the regulator has proposed merging the investor protection funds for the equity and commodity segments. Additionally, the framework seeks to update the client code modification process to ensure smoother operational workflows.

SEBI has invited public comments on these proposals, which will be accepted until July 13, 2026. The final regulatory framework will be notified only after the regulator evaluates the feedback from market participants and stakeholders to ensure a principles-based and efficient system.

Key Takeaways

  • Regulatory Consolidation: SEBI aims to merge separate rules for stock and commodity exchanges into single master circulars to reduce complexity.
  • Operational Ease: The plan includes reducing periodic reporting burdens and introducing a single-window registration for Smart Order Routing (SOR).
  • Unified Safety Nets: To improve efficiency, SEBI proposes merging investor protection funds for both equity and commodity segments.