The Securities and Exchange Board of India (SEBI) has unveiled comprehensive proposals to transform the trading framework governing stock exchanges, marking a significant step toward regulatory simplification and operational efficiency. The markets regulator announced these reforms on Friday as part of its strategic initiative to enhance the ease of doing business across India's financial markets.

Key Reform Objectives

The proposed framework overhaul focuses on three primary areas of improvement for market operations. SEBI aims to simplify existing trading rules that have become complex over time, eliminate regulatory duplication that creates unnecessary administrative burden, and significantly reduce compliance requirements for market participants. These reforms represent a systematic approach to modernizing India's trading infrastructure.

Scope of Implementation

The regulatory changes will apply comprehensively across India's exchange ecosystem. The framework encompasses traditional stock exchanges as well as commodity derivatives exchanges, ensuring uniform implementation of simplified procedures. This broad scope demonstrates SEBI's commitment to creating consistent operational standards across different market segments.

Strategic Context

These proposals form part of SEBI's broader push to facilitate ease of doing business across stock exchanges. The regulator has identified the need to streamline operations and reduce administrative complexities that market participants currently face. By addressing these operational challenges, SEBI aims to create a more efficient and accessible trading environment for all market stakeholders.

Market Impact

The proposed reforms are expected to benefit various market participants by reducing operational complexities and compliance costs. Market participants will likely experience streamlined processes and clearer regulatory guidelines once these proposals are implemented. The initiative reflects SEBI's ongoing efforts to maintain India's position as an attractive destination for financial market activities while ensuring robust regulatory oversight.

The Securities and Exchange Board of India (Sebi) has unveiled comprehensive proposals to overhaul the trading-related framework at stock exchanges, marking a significant step toward simplifying regulatory compliance and enhancing operational efficiency. The consultation paper released on Friday outlines extensive reforms aimed at consolidating fragmented regulations into a unified structure.

Consolidated Framework Structure

Sebi's primary proposal involves merging multiple overlapping provisions into a single, consolidated framework applicable to both equity and commodity segments. The unified structure will encompass trading rules, price bands, circuit breakers, bulk and block deal disclosures, call auction mechanisms, liquidity enhancement schemes, margin trading facility (MTF), unique client code (UCC), PAN requirements, trading hours, and daily price limits.

The regulator has suggested that provisions specifically applicable to clearing corporations should be separated and moved into a dedicated master circular to eliminate regulatory overlap and improve clarity.

Enhanced Margin Trading Facility Requirements

Significant changes have been proposed for the margin trading facility framework, with Sebi recommending substantial increases in financial requirements for participating brokers.

The enhanced net worth requirements reflect Sebi's focus on ensuring adequate financial backing for brokers offering margin trading services, while timeline adjustments aim to reduce administrative burden.

Transparency and Disclosure Improvements

Sebi has proposed significant modifications to disclosure mechanisms to improve market transparency and reduce manual reporting requirements. The regulator suggests merging bulk and block deal disclosures and shifting dissemination from the UCC level to the client PAN level, thereby streamlining reporting processes for brokers.

Additionally, market-wide circuit breaker rules, dynamic price band flexing, IPO price bands, and call auction procedures will be presented in standardized tabular formats to enhance clarity and accessibility.

Liquidity Enhancement and Market-Making Reforms

The consultation paper proposes removing obsolete market-making provisions for the cash segment and integrating them into a principle-based Liquidity Enhancement Scheme (LES) framework. This unified approach will cover equities, derivatives, and commodities under a single regulatory structure.

Under the revised framework, exchanges will gain greater flexibility in designing schemes, conducting half-yearly board reviews, and offering incentives. Higher caps will be available for new exchanges or new segments, providing additional operational latitude.

Operational Simplifications and Modernization

Sebi has identified numerous outdated provisions for removal, including negotiated-deal exemptions, guidelines for dedicated debt segments, forward contracts in commodities, MOU-based trading, and unnecessary reporting requirements. Trading hours across all segments—equity, derivatives, commodities, currency, RFQ, EGR, and the Social Stock Exchange—will be consolidated into a single comprehensive section.

Client Code Modification rules will be liberalized to permit genuine corrections, allow PAN-linked multiple UCCs for specified client categories, facilitate easier obligation transfer among FPI family accounts, and increase waiver frequency to once monthly while discontinuing quarterly waiver reporting to Sebi.

Implementation Timeline and Next Steps

The regulator has invited public comments on all proposed changes until January 30, providing market participants with an opportunity to provide feedback on the comprehensive reforms. The consultation process reflects Sebi's commitment to stakeholder engagement in developing the final regulatory framework.

These proposals represent part of Sebi's broader initiative to facilitate ease of doing business across stock exchanges, including commodity derivatives exchanges, while maintaining market integrity and investor protection standards.