SEBI Aims to Streamline Registration Process
India’s Securities and Exchange Board of India (SEBI) is planning significant regulatory changes to bring foreign investors back to the country’s stock markets. The new chairman, Tuhin Kanta Pandey, who took office in March, has been working to create more investor-friendly rules compared to the stricter approach of his predecessors.
The push comes at a crucial time. Foreign money managers have withdrawn nearly $17 billion from Indian stocks this year, while the economy faces additional pressure from steep US tariffs on Indian exports.
Pandey identified the registration process as the primary concern during his discussions with overseas participants. “In my interactions with foreign participants, both in India and abroad, I got the feeling that the number one issue is that our registration process still takes too long. It is unacceptable,” Pandey told Reuters. The regulator aims to reduce registration times to “a few days, not even a month.”
Reviewing Market Rules and Costs
SEBI is examining multiple regulations, including deposit requirements for share trading and ways to boost activity in India’s cash markets. “While the liquidity in cash markets has improved in the last few years we want it to improve further,” Pandey said, noting that some decisions may need to be made regarding margins, though he didn’t provide specific details.
Transaction costs are another area of focus. “We have to look at costs. If the transaction cost is too high the activity will not take place,” Pandey emphasized. The regulator is reviewing short-selling rules and the securities lending and borrowing system, which Pandey described as currently “pretty shallow.”
Addressing Derivatives Market Concerns
India’s derivatives market presents an interesting challenge. It has grown to become more than 300 times larger than the regular stock market, with futures and options trading becoming extremely popular among retail investors. SEBI has been trying to moderate this growth by considering “product suitability” rules that would make it more difficult for small investors to engage in risky derivatives trades.
“We have highlighted the problem that there is irrational exuberance of some of the players, whom we consider not really adequately informed about the risks in the market,” Pandey said. However, the regulator plans to first assess the impact of recent changes before implementing new measures, seeking “a certain stability of approach” in addressing these concerns.
Potential for Netting and Settlement Changes
One significant reform under consideration involves allowing “netting,” which would enable investors to combine buy and sell transactions, reducing the amount of capital required to fund trades. This would be particularly beneficial for foreign investors. “Perhaps netting in the same scrip may not be possible but in different scrips is possible. If we do that, that will be a big facilitative step,” Pandey noted, though India’s central bank currently doesn’t permit such arrangements.
In response to foreign investor feedback, SEBI has already backed away from plans to move to same-day settlement, maintaining the current next-day system for now. These regulatory adjustments come as India faces economic challenges and ongoing trade negotiations with Washington, making investor confidence a priority for policymakers.
