Markets regulator Sebi has announced comprehensive proposals to overhaul the trading-related framework at stock exchanges, targeting simplified rules and reduced compliance burden for market participants. The initiative, outlined in a consultation paper released on Friday, January 9, represents part of Sebi's broader push to facilitate ease of doing business across stock exchanges, including commodity derivatives exchanges.

Consolidated Framework Structure

Sebi has proposed merging multiple overlapping provisions into a single, consolidated framework applicable to both equity and commodity segments. The unified approach 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 suggests that provisions specifically applicable to clearing corporations should be carved out and moved into a dedicated master circular to avoid regulatory overlap.

Enhanced Transparency and Reporting

To improve market transparency, Sebi has proposed significant changes to disclosure mechanisms. The regulator suggests merging bulk and block deal disclosures and shifting dissemination to the client PAN level instead of the UCC level, thereby reducing manual reporting requirements for brokers. Market-wide circuit breaker rules, dynamic price band flexing, IPO price bands, and call auction procedures will be presented in tabular form, while several duplicative or outdated operational examples will be removed.

Margin Trading Facility Reforms

Sebi has outlined substantial changes to MTF norms, including raising the minimum net worth requirement for brokers from ₹3 crore to ₹5 crore or higher, as specified by exchanges. The proposals also include aligning timelines for submitting net-worth and auditor certificates with financial reporting cycles and deleting redundant due diligence clauses.

Liquidity Enhancement and Market Making

The regulator proposes removing obsolete market-making provisions for the cash segment and merging them into a principle-based Liquidity Enhancement Scheme (LES) framework that uniformly covers equities, derivatives, and commodities. Under the revised framework, exchanges will have greater flexibility in designing schemes, conducting half-yearly board reviews, and offering incentives, with higher caps for new exchanges or new segments.

Operational Simplifications

Several outdated provisions face elimination under the proposals, including negotiated-deal exemptions, guidelines for a dedicated debt segment, 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 section.

Client Code Modification rules will be liberalised to permit genuine corrections, allow PAN-linked multiple UCCs for specified client categories, facilitate easier obligation transfer among FPI family accounts, increase waiver frequency to once a month, and discontinue quarterly waiver reporting to Sebi. The framework will also harmonise penalties between exchanges and clearing corporations.

Additional Provisions

Short-selling and securities lending and borrowing (SLB) provisions will be clarified and incorporated into the main framework, with daily disclosures mandated and responsibilities of exchanges and clearing corporations clearly demarcated. Commodity-specific disclosures, including hedger delivery intent, open interest data, and risk disclosures by listed entities, will form part of the unified circular. The regulator also proposes updating provisions on UPI-based trading with blocked amounts in the secondary market, while shifting settlement-related aspects to the clearing corporation master circular.

Sebi has invited public comments on the proposals until January 30, providing market participants an opportunity to contribute to the framework's development.

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.