News

This is a Mint Premium article gifted to you. Subscribe to enjoy similar stories.

The Securities and Exchange Board of India (Sebi) has issued a series of proposals aimed at simplifying the regulatory framework for stock exchanges and clearing corporations.

In its consultation paper released on 8 October, the markets regulator outlined its objectives to improve ease of doing business by removing outdated rules, reducing compliance costs, and consolidating various directives.

Mint explains the reasons behind the proposed reforms and what these changes could mean for the future of India’s financial market oversight.

The primary goal, Sebi said, is to modernise the administration of market infrastructure institutions (MIIs), which include stock exchanges and clearing corporations.

Sebi has proposed to update the Master Circular for Stock Exchanges and Clearing Corporations (MSECC) and the Master Circular for Commodity Derivatives (MCD). The MSECC covers comprehensive administrative and governance norms for stock exchanges and clearing corporations, while the MCD consolidates all regulatory provisions for commodity derivatives trading including product guidelines, participant eligibility, position limits, and trading procedures.

Sebi has proposed several key proposals for strengthening and clarifying investor protection mechanisms.

Until now, there has been no specified time limit for investors to file a claim against a defaulting broker through the investor protection fund (IPF), leading to claims for trades conducted over a decade ago. The new proposal introduces a clear three-year “lookback period". This means only trades made within three years before a broker is declared a defaulter will be eligible for compensation.

Further, Sebi recommends merging the separate IPFs for the equity and commodity derivatives segments into a single, unified fund for each exchange. This change aims to create a larger, more resilient corpus to handle claims. NSE’s IPF amount was at ₹2,459 crore as of 31 March.

The rules will be clarified to explicitly hold promoters and directors of exclusively listed companies liable if they fail to give shareholders a timely exit.

Financial services veterans view the IPF changes with a mix of optimism and caution.

S. Ravi, former BSE chairman, noted the main risk is cross-subsidisation, where a major failure in one market segment could deplete funds meant for the other. “Success will require meticulously calibrated contribution norms and robust internal safeguards," he said.

Others agree that a single IPF should reduce administrative overlap and expedite the claims process.

However, the merged fund requires carefully designed rules to account for the different claim patterns in equity and commodity markets, ensuring enough funds are available to cover losses during a market crisis.

“The risk is calibration. Equity and commodity claim profiles differ, so fund-sizing, triggers, and governance will need guardrails to avoid under-provisioning in stress," said Paramdeep Singh, founder of Long Tail Ventures.

The proposals suggest significant adjustments to governance and oversight functions to reduce administrative burdens.

Sebi has proposed relaxing the mandatory attendance of public interest directors (PIDs) at all meetings. Instead, PIDs will be required to attend a minimum of two meetings annually, providing more flexibility.

Their reporting duties would also be simplified, replacing the formal requirement for written reports with verbal updates, with written submissions to SEBI reserved only for significant issues like conflicts of interest.

In a similar move to reduce redundancy, the Independent Oversight Committee (IOC), which handles inter-exchange conflicts, is proposed to be absorbed by the Regulatory Oversight Committee (ROC) due to overlapping functions.

Furthermore, a conflict resolution committee (CRC) would be formed on an as-needed basis to address conflicts as they arise, rather than operating as a standing committee, reflecting the rarity of such events.

Experts expressed concern that easing these rules could weaken oversight. S. Ravi describes the dilemma as “balancing ease of doing business with effective governance".

He warned that relaxing attendance and reporting rules could lead to dilution of oversight and creation of dangerous information gaps between an exchange and the regulator.

While acknowledging the changes could attract top-tier talent, S. Ravi stressed that the watchdog role of PIDs must not be compromised.

Paramdeep Singh added that while the changes reduce procedural bottlenecks, they risk "weakening fiduciary accountability," which must be mitigated by strengthening audit and committee structures.

The consultation paper includes several modernizing and consolidating measures. The minimum annual trading turnover required for an exchange to continue operations is set at ₹1,000 crore. However, Sebi will have the power to increase this threshold over time to reflect market growth.

Outdated requirements are being eliminated, such as the two-digit codes for stock exchanges used in the physical trading era, rules for small exchanges that now have an exit policy, and guidelines for the distinctive number (DN) database for shares.

To improve clarity, Sebi proposes creating a separate master circular for clearing corporations (CCs), whose roles have become distinct from stock exchanges. Additionally, rules from the master circular for commodity derivatives will be merged with the main circular for stock exchanges, simplifying compliance for exchanges that handle both.

The consensus is that Sebi's proposals represent a necessary move toward a more agile and efficient market framework.

Experts agree that the direction reflects genuine market needs to simplify legacy compliance burdens. However, they caution that this push for simplification must be balanced with regulatory vigilance. The public has been invited to submit comments on these proposals by 29 October.

Download the Mint app and read premium stories

Log in to our website to save your bookmarks. It'll just take a moment.

You are just one step away from creating your watchlist!

Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

This is a subscriber only feature Subscribe Now to get daily updates on WhatsApp