In a significant move to modernize India's financial markets, the Securities and Exchange Board of India (Sebi) unveiled a comprehensive proposal on Friday to revamp stock exchange regulations. The sweeping clean-up aims to eliminate redundant rules, retire outdated provisions, and significantly enhance the ease of doing business for exchanges, brokers, and other market participants.
Key Proposals: Higher Capital, Simplified Compliance
The draft consultation paper contains several critical changes. A major highlight is the proposal to raise the minimum net-worth requirement for stockbrokers offering the margin trading facility (MTF) to ₹5 crore or higher, up from the current ₹3 crore. This threshold, originally set in 2004 to ensure only robust institutional players offered margin trading, has remained unchanged since a 2022 review. Sebi also plans to grant exchanges greater autonomy, allowing them to revise these net-worth requirements periodically without needing prior regulatory approval.
MTF enables investors to buy securities by paying only a fraction of the total value upfront, with the broker funding the remaining amount within set margins.
Streamlining Processes and Removing Obsolete Rules
Sebi has proposed revising the submission timelines for net-worth certificates submitted by MTF brokers. For the half-year ending 30 September, certificates must be submitted within 45 days, while for the period ending 31 March, the deadline extends to 60 days. To maintain consistency, the regulator has also aligned the timeline for submitting auditor certificates with these revised dates.
In a bid to remove clutter, Sebi has suggested scrapping market-making provisions issued in the year 2000, deeming them obsolete. Exchanges now favour more flexible Liquidity Enhancement Schemes (LES). The draft also seeks to clarify market-making requirements for companies listed on the SME platform undergoing demergers, proposing that market making would be required unless the demerged entity has already fulfilled the obligation.
Operational Ease and Commodity Market Integration
Other proposals focus on reducing the daily operational burden. These include simplifying client code modification rules, increasing waivers for genuine errors from once per quarter to once per month, and discontinuing quarterly reporting of such waivers to Sebi. Exchanges would also no longer need to submit end-of-day surveillance reports on pre-open auction alerts, instead being empowered to take direct action.
For the commodity derivatives segment, Sebi proposes a unified framework by merging provisions with those for equity cash and derivatives. This includes simplifying approval and review processes, with a half-yearly board review replacing multiple approvals. Additionally, the regulator has suggested incentivizing farmers and Farmer Producer Organizations (FPOs) to participate in options markets by utilizing the option premium they pay.
Background and Next Steps
This exercise follows Finance Minister Nirmala Sitharaman's Budget FY24 emphasis on simplifying compliance for the financial sector. It is the second consultation paper in a series aimed at ease of doing business, with the ultimate goal of issuing a single, consolidated circular on trading-related provisions. The draft paper is open for public comments until 30 January 2026.
