The Securities and Exchange Board of India (Sebi) has announced plans to initiate a significant overhaul of the regulations governing short-selling and the securities lending and borrowing (SLB) mechanism. This review, according to Sebi chairman Tuhin Kanta Pandey, is designed to bolster market liquidity and improve the accuracy of price discovery in Indian capital markets. Speaking at an event, Pandey emphasized that the effort is part of a broader strategy to address demands from market participants and deepen the overall capital market architecture.
Short selling, a practice where investors sell borrowed shares, and the SLB mechanism, which provides a formal system for lending and borrowing securities, are central to the regulator’s current focus. By refining these frameworks, the watchdog intends to make the markets more efficient and transparent for diverse classes of investors. These changes form part of a wider series of reforms intended to strengthen market safeguards while simultaneously reducing the compliance burden on various entities operating within the financial ecosystem.
Beyond short-selling, the regulator is actively addressing systemic inefficiencies in financial transactions. Specifically, Sebi plans to eliminate parallel clearing processes in tender offers, share buybacks, and offers for sale. According to the regulator, these processes currently add unnecessary costs and complexity. By streamlining these procedures, Sebi aims to improve capital efficiency for firms. The regulator is also moving toward implementing a modified closing auction session and extending the reach of its reporting platform, the Samuhik Prativedan Manch, to include depositories. This move is expected to simplify the reporting process by allowing a single submission to serve both stock exchanges and depository institutions.
For stockbrokers, the regulator is exploring a shift toward graded compliance requirements. This proposed system would base regulatory expectations on a firm's operational scale, client exposure, and its specific reliance on technological infrastructure. Such a move is expected to alleviate the regulatory pressure on smaller players while maintaining robust oversight for larger entities. Furthermore, rules for depository participants are currently being revised to clarify compliance expectations and enhance existing safeguards against potential fraudulent activities.
Another notable reform involves the custodial segment. Sebi intends to extend the automated give-up and take-up facility to custodial clients, including those managing portfolio management services and alternative investment funds in the cash segment. This technological intervention is intended to prevent funds from remaining unnecessarily blocked while waiting for confirmation from custodians, thereby increasing overall market fluidity.
Additionally, Sebi is targeting the corporate bond market, which currently holds an outstanding value of approximately 61 lakh crore. To stimulate secondary market trading, the regulator is in the process of developing a new market-making framework. The initiative seeks to provide depth and liquidity to this segment, which remains a vital component of India's capital market development. These measures collectively reflect a concerted effort by the regulator to modernize its operational framework in line with international standards and domestic growth requirements.
As these reforms progress, market participants are expected to see changes in both operational costs and reporting ease. The regulator’s focus remains on balancing the need for rigorous oversight with the requirement for a frictionless trading environment. While these updates represent a shift in the regulatory landscape, they underscore the board's commitment to creating a more resilient and accessible market structure for domestic and international participants alike. The upcoming adjustments are anticipated to be rolled out as part of Sebi's ongoing mission to refine market conduct and institutional efficiency across all segments of the trading ecosystem.
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