The Securities and Exchange Board of India (Sebi) has unveiled a comprehensive plan to revamp the regulatory framework governing stock exchanges. The proposed overhaul, detailed in a consultation paper released on Friday, 12 January 2026, aims to simplify decades-old rules and delegate significant day-to-day supervisory authority to the stock exchanges themselves.
Key Proposals in Sebi's Regulatory Clean-Up
The central thrust of the changes involves consolidating existing trading norms into a single, unified circular. This will be achieved by revising the Master Circular for Stock Exchanges and Clearing Corporations (MSECC) and the Master Circular for Commodity Derivatives (MCCD). The goal is to eliminate outdated provisions, streamline compliance, and update regulations that are over a decade old.
One of the most significant changes is the proposal to increase the minimum net-worth requirement for brokers offering the margin trading facility (MTF). The threshold, which was set at ₹3 crore in 2004 and last reviewed in 2022, is now proposed to be raised to ₹5 crore. Furthermore, stock exchanges will have the discretion to set even stricter norms if they deem it necessary.
Other important proposals include:
- Aligning submission timelines for net-worth statements and auditor certificates.
- Removing obsolete market-making provisions that are no longer in use.
- Bringing all Liquidity Enhancement Schemes (LES) under a single, principle-based framework to ensure consistency.
These schemes are crucial for ensuring liquidity and fair price discovery, especially in securities with lower trading volumes, by maintaining continuous buy-sell quotes and curbing sharp price movements.
Empowering Exchanges and Strengthening Investor Safeguards
Sebi's vision involves moving routine supervision, monitoring, and enforcement closer to the ground by empowering stock exchanges as the first line of regulation. This means exchanges will gain more autonomy in areas such as setting and revising net-worth norms for MTF brokers, deciding penalties for market-making violations through their member committees, and handling surveillance alerts from pre-open call auctions without needing to send end-of-day reports to Sebi.
Expert KC Jacob, partner at Economic Laws Practice, noted that this shift allows Sebi to focus on high-level policy-making while exchanges handle on-the-ground surveillance, leading to quicker detection and resolution of market anomalies.
The move to raise net-worth requirements is directly tied to enhancing investor protection. By ensuring that only well-capitalized brokers can offer leverage products like MTF, the risk of broker defaults is reduced. Raj Shah, co-founder of EPP Securities, emphasized that this step strengthens market integrity and provides an additional safety net for retail investors.
Sebi has also reinforced the importance of mandatory market making for companies listed on the SME platform, where liquidity is often a challenge. This practice is vital for continuous price discovery, protecting retail investors from volatility, and enhancing the platform's credibility for fundraising.
Rationale and Future Direction
The regulatory clean-up was necessitated by the evolution of India's financial markets. Many existing rules were designed for a different market structure and had become redundant, were superseded by newer frameworks, or simply added compliance costs without proportional benefits to investor safety.
Sebi stated that this initiative aligns with its broader push to improve the ease of doing business while steadfastly preserving market integrity. It also follows Finance Minister Nirmala Sitharaman's budget emphasis on simplifying regulations through stakeholder consultation.
Looking ahead, Sebi is seeking to unify rules across equity cash, equity derivatives, and commodity derivatives segments, particularly for market-making schemes. A proposal to replace multiple reviews with a single half-yearly board review of such schemes is on the table. The regulator also wants to give exchanges more flexibility to use incentives to build liquidity in new market segments, such as encouraging farmers and FPOs to participate in commodity options.
Public comments on the consultation paper are open until 30 January 2026. This proposal marks the second in a series of papers aimed at easing business operations for stock exchanges, following an initial paper released in October of the previous year.
