The Securities and Exchange Board of India (Sebi) has introduced comprehensive reforms to streamline the accredited investor onboarding process for alternative investment funds (AIFs), addressing long-standing industry concerns about operational delays and procedural inefficiencies. The changes, notified through a circular on Friday, take effect immediately and are expected to significantly reduce friction for high net worth investors accessing private market products.

Revised Onboarding Framework

Under the new framework, AIF managers gain substantial operational flexibility in processing investor applications. Investment managers can now proceed with critical onboarding steps based on their own assessment of whether an investor meets eligibility criteria, without waiting for formal accreditation certificates from recognized agencies.

The revised process allows managers to:

• Finalize and execute contribution agreements before certification
• Initiate related operational processes during the accreditation period
• Complete key documentation requirements in parallel with certification

Compliance Safeguards and Restrictions

Sebi has established clear operational guardrails to maintain investor protection standards while enabling process improvements. The regulator has specified strict limitations on fund management activities during the interim period.

Documentation Requirements Simplified

The regulator has significantly eased documentation burdens for net worth-based accreditation following market representations. Previously, chartered accountants were required to provide detailed net worth breakdowns as annexures to certificates, creating additional administrative complexity.

Under the revised requirements:

• Detailed net worth breakdowns are no longer mandatory
• Chartered accountants can optionally specify exact net worth figures
• Confirmation of meeting prescribed thresholds remains sufficient
• Overall documentation burden is substantially reduced

Industry Context and Background

The reforms address sustained industry feedback regarding the accreditation framework introduced in 2021, which had become operationally cumbersome for market participants. Accredited investors are individuals or entities meeting specified income or net worth thresholds, presumed to have the financial capacity and understanding for higher-risk investment products.

Currently, accreditation is conducted exclusively by recognized agencies, including subsidiaries of stock exchanges and depositories. The framework ensures that only qualified investors can access alternative investment products while maintaining appropriate regulatory oversight.

Implementation and Compliance

The circular places primary responsibility for compliance with revised requirements on AIF trustees, sponsors, and managers through the compliance test report mechanism. This internal control system, prescribed under Sebi's master circular for AIFs, ensures adherence to regulatory standards while enabling operational flexibility.

The immediate implementation of these changes reflects Sebi's commitment to addressing market inefficiencies while maintaining robust investor protection standards in the alternative investment sector.

The Securities and Exchange Board of India (SEBI) has announced a comprehensive proposal to overhaul trading-related rules for stock exchanges, marking a significant step in its ease of doing business agenda. The regulator aims to simplify regulations, eliminate duplication, and reduce compliance costs through wide-ranging reforms that would create a more streamlined regulatory environment.

Regulatory Consolidation Framework

SEBI has proposed consolidating and rationalising provisions under Chapter 1 (Trading) of the master circular for stock exchanges and clearing corporations, along with relevant sections of the commodity derivatives master circular. The proposed framework would apply uniformly across equity cash, equity derivatives, and commodity derivatives segments, creating consistency in regulatory approach.

The regulator plans to merge the two existing disclosure frameworks and has clarified that bulk deal information should be disseminated at the client level, mapped to PAN, rather than at the unique client code level. Since exchanges already have access to client-level data, this change would reduce back-and-forth communication with brokers while maintaining the original regulatory intent of transparency.

Enhanced Margin Trading Requirements

Significant changes have been proposed for margin trading operations, with SEBI suggesting an increase in the minimum net-worth requirement for brokers offering margin trading facility (MTF).

The timelines for submitting net-worth and auditor certificates are proposed to be aligned with financial reporting cycles, which would ease compliance pressure on market participants.

Liquidity Enhancement Scheme Reforms

SEBI has proposed a significant revamp of liquidity enhancement schemes (LES) and market making operations. The regulator plans to subsume market making schemes into a single, principle-based LES framework applicable across all segments. This consolidated approach would replace multiple layers of approvals and monitoring with a streamlined single half-yearly board review process.

The proposal removes the requirement for exchanges to submit half-yearly effectiveness reports to SEBI, further reducing administrative burden. To support newer exchanges or new segments, SEBI has proposed allowing incentives of up to 25 per cent of net worth for the first five years of operations in a segment, subject to safeguards against artificial volumes or market manipulation.

Additional Regulatory Improvements

The proposed changes include several operational enhancements designed to improve market functioning:

• Tabulating rules on circuit breakers, price bands, and pre-open auctions for better clarity
• Deleting obsolete provisions on negotiated deals and Foreign Portfolio Investor (FPI) exemptions
• Simplifying PAN and client code rules for easier compliance
• Allowing more flexibility for genuine client code modifications without penalty

Public Consultation Process

SEBI has invited public comments on these comprehensive proposals, with the consultation period remaining open until January 30. This timeline allows market participants, exchanges, and other stakeholders sufficient opportunity to provide feedback on the proposed regulatory changes before implementation.

The proposed overhaul represents SEBI's commitment to creating a more efficient and business-friendly regulatory environment while maintaining market integrity and investor protection. The consolidation of rules across different market segments and the reduction in compliance requirements are expected to benefit both exchanges and market participants through simplified operations and reduced costs.