The Securities and Exchange Board of India (Sebi) is proposing a major overhaul of trading rules that could reshape how Indian markets are regulated. The focus is on simplifying long-standing regulations and shifting more day-to-day supervision to stock exchanges.
In a consultation paper released on Friday, Sebi proposed merging existing trading norms into a single consolidated circular. This would be done by revising the Master Circular for Stock Exchanges and Clearing Corporations (MSECC) and the Master Circular for Commodity Derivatives (MCCD). The aim is to streamline compliance, remove outdated provisions, and update norms that are more than a decade old.
mint explains what Sebi is proposing and why it matters for stock exchanges.
What changes will market participants see?
The consultation paper outlines a broad set of operational and regulatory changes. Among the most significant is a proposal to raise the minimum net-worth requirement for brokers offering the margin trading facility (MTF) from 3 crore to 5 crore—or higher, if exchanges choose to prescribe stricter norms.
The existing threshold was first introduced in 2004 and was last reviewed in 2022.
Other proposals include:
- Aligning timelines for submission of net-worth statements and auditor certificates
- Removing market-making provisions that are no longer in use
- Bringing liquidity enhancement schemes (LES) under a single, principle-based framework
LES and market-making schemes are designed to improve liquidity and price discovery, especially in thinly traded securities, by ensuring continuous buy-sell quotes and reducing sharp price swings.
Why were these changes needed?
Many of the provisions Sebi is seeking to scrap or modify were created for a very different market structure. Over time, some rules became redundant, others were overtaken by newer frameworks, and several added compliance costs without significantly improving investor protection.
Sebi has said the clean-up aligns with its broader push to improve ease of doing business while preserving market integrity.
The move also follows finance minister Nirmala Sitharaman’s FY24 Budget emphasis on simplifying compliance through stakeholder consultation. Sebi had released an earlier paper in October outlining ease-of-doing-business measures for stock exchange administration. The current paper is the second in that series.
How do the new norms empower stock exchanges?
Sebi wants to move routine supervision, monitoring and enforcement closer to the exchanges, who would act as the first line of regulation for market participants.
For example, exchanges would be able to set and revise net-worth norms for MTF brokers, decide penalties for market-making violations through their member committees, and handle surveillance alerts from pre-open call auctions, without sending end-of-day reports to Sebi. Exchanges would also be allowed to examine alerts and levy penalties at their disposal.
“Sebi is increasingly focusing on regulatory policymaking, while delegating surveillance responsibilities to stock exchanges”, said KC Jacob, partner at Economic Laws Practice.
“This division of roles enables quicker detection of anomalies and more efficient resolution of potential violations,” he said.
Does this strengthen investor protection?
Raising net-worth requirements for MTF brokers ensures that only financially sound intermediaries can extend leverage to investors, reducing the risk of broker defaults.
“The move is likely to strengthen market integrity by ensuring that only well-capitalized intermediaries extend leverage, thereby providing additional safeguards for retail investors,” said Raj Shah, co-founder and executive director at EPP Securities.
Sebi has also reiterated the importance of market making for SME-listed companies, where liquidity is often limited due to smaller free floats and lower trading volumes.
Mandatory market making helps ensure continuous price discovery, orderly trading, safeguards retail investors from excessive volatility or manipulation, and enhances the credibility and fund-raising potential of the SME platform, said Shah.
What else is Sebi looking to change?
The regulator is seeking to unify rules across equity cash, equity derivatives and commodity derivatives—particularly for market-making and liquidity-enhancement schemes.
One proposal aims to replace multiple reviews and approvals with a single half-yearly board review of such schemes.
Sebi has also suggested giving exchanges, which venture into new market segments, greater flexibility to use incentives to build liquidity. In commodity markets, incentivizing farmers and farmer producer organizations (FPOs) to participate in options on futures could help widen participation.
Public comments on the consultation paper are open until 30 January 2026.
