Setting the Reform Agenda in the Indian Securities Markets

Financial regulators continually navigate the tensions between deregulation and overregulation, as well as the choice between principles-based or rule-based approaches. SEBI will play a pivotal role in shaping a pragmatic, future-ready regulatory architecture that supports the evolution of India’s securities markets in line with the Vision 2047 Viksit Bharat agenda. As it charts this new pathway, SEBI must consolidate the strong regulatory foundation built over the decades while adopting a more adaptive, forward-looking stance suited to the trajectory of Viksit Bharat’s capital markets.

Following the finance minister’s 2023-24 Budget commitments to foster optimal regulation, SEBI set up 16 working groups under its standing advisory committees in October 2023. These groups were tasked with reviewing three decades of securities regulations and recommending ways to simplify compliance and reduce costs for regulated entities. To further strengthen stakeholder participation and transparency in rulemaking, SEBI issued the Procedure for Making, Amending, and Reviewing of Regulations, which mandates public consultation and systematic evaluation of stakeholder feedback.

In recent years, SEBI’s regulatory reform agenda and ease-of-doing business efforts have broadly followed a three-pronged approach:

Micro-level Changes for Streamlining Procedures 
Over the past two years, SEBI has introduced several measures based on feedback from intermediaries and industry forums. These reforms span market infrastructure intermediaries, investment advisers, stock brokers, mutual funds, Alternative Investment Funds, credit rating agencies, and listed issuers. Key initiatives include fast-tracking rights issues, permitting digital statutory advertisements, and introducing an integrated filing system to reduce issuer costs. A new common reporting mechanism allows stock brokers to submit compliance reports through a single interface, while penalties for stock brokers have been rationalised for greater proportionality and clarity.

Streamlining of Various Regulations
Alongside a series of consultation papers, SEBI issued 14 master circulars in 2024-25 to eliminated ambiguities and redundancies in compliance requirements. It is now undertaking a comprehensive review of regulations introduced over the past three decades to ensure they are forward-looking and aligned with emerging market needs. Priority areas include regulations governing stock brokers, depositories and their participants, registrars and transfer agents, mutual funds, AIFs, and foreign portfolio investors. SEBI is also reviewing the qualified stock broker framework, software vendor oversight and the process for preparing draft offer documents.

Proactive Initiatives 
SEBI is complementing simplification efforts with reforms aimed at enhancing market resilience. Targeted interventions to curb excessive F&O trading have bolstered investor protection and market stability. The overhaul of the SME listing framework has strengthened corporate governance in the segment. The Mutual Fund Lite framework for passive schemes and simplified rules for investment advisors and research analysts have lowered compliance burdens. Meanwhile, relaxed requirements for FPIs investing only in government bonds and the SWAGAT-FIs framework have improved market access through a light-touch regulatory approach.

Wars of Tomorrow Cannot be Fought with Weapons of Yesterday
A forward-looking reform agenda demands a sharper focus on structural and practical dimensions that enhance agility and build new capabilities for a resilient securities market of the future.

Reinforcing Principles-based Paradigm: With decades of experience in rulemaking, supervision, and enforcement, SEBI is now positioned to adopt a principles-based framework for mature market segments. Moving away from prescriptive and highly granular rules can prevent rigidities and enable the regulator to redirect attention to more strategic developmental priorities. 

Big-ticket Reforms: Fast-tracking transformative reforms will help attract long-term investment and accelerate India's growth trajectory. Key priorities include raising foreign institutional investment limits, enabling the overseas listing of Indian companies via GIFT IFSC exchanges, and allowing asset reconstruction companies to purchase distressed assets from mutual funds and AIFs. A comprehensive review of the rapidly growing private equity and venture capital sectors and their overlaps with public markets, including IPOs and corporate governance, should receive urgent attention.

Enhancing International Capital Flows: To attract larger foreign investment flows, trading, settlement, and asset-servicing infrastructure for new products must be upgraded. This may include establishing settlement links with international securities depositories directly or via IFSC-based entities. Calibrated capital-control norms could facilitate cross-currency trading and settlement between IFSC platforms and domestic exchanges, aiding the internationalisation of the rupee. The SGX-NIFTY partnership offers a replicable model for other markets. Extending trading hours for cash and derivatives markets can strengthen India’s role as a global price-setter in key commodity derivatives. 

Supplemental Layer of Independent SROs: To reshape market structures and supervisory practices, SEBI must enhance its monitoring capabilities while ensuring impartiality. Establishing independent, legally empowered SROs can strengthen frontline supervision, reduce excessive reliance on MIIs and industry bodies, and help temper the influence of narrow commercial interests.

Reinvention of Supervisory Processes: A systemic approach to supervisory reform can yield long-term benefits. To improve agility in supervision and enforcement, SEBI must overhaul regulatory workflows and integrate advanced technology and contextual intelligence. Developing new regulatory capabilities and collaborative networks will be essential to accommodate emerging models such as tokenised asset trading and Central Bank Digital Currency-based settlement.

Regulatory Impact Assessment: Embedding cost-benefit analysis within the public consultation process can enhance the transparency and credibility of rulemaking. A rigorous regulatory impact assessment, standard in many global jurisdictions, should evaluate economic effects on stakeholders, assess policy options, and align decisions with a risk-based, data-driven, and outcome-oriented approach. 

In an increasingly complex market ecosystem, SEBI’s reform drive must remain sharply focused on delivering impactful outcomes for India’s securities markets. By adopting agile organisational structures, streamlined workflows, and advanced supervisory tools, the regulator can address the growing scope, scale, sophistication, and speed of market activity. Preparing to oversee Viksit Bharat’s capital markets will require not only structural reforms but also a fundamental shift in regulatory mindset, towards a trust-driven, principles-aligned framework that strengthens market resilience.