The changes SEBI plans to undertake are aimed at ensuring that its market development role does not take a backseat to its policing role
SEBI plans a review of all existing regulations to identify pain points for market participants | Photo Credit: HEMANSHI KAMANI
In a recent interaction with this newspaper, the new Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey suggested a significant shift in the market regulator’s approach on three counts. One, SEBI plans to slow down the pace of regulation-writing by engaging in more detailed consultations and data analysis before proposing new rules. This is aimed at reducing rollbacks and flip-flops.
Two, it plans a review of all existing regulations to identify pain points for market participants, in a bid to streamline regulations. Three, it plans to enhance internal capacity on evidence-gathering and framing of orders to reduce legal challenges. These changes are aimed at ensuring that SEBI’s market development role does not take a backseat to its policing role. But given the long history of capital market participants exploiting the smallest of regulatory loopholes to take stakeholders for a ride, SEBI needs to proceed cautiously on watering down regulations. Under Madhabi Puri Buch’s tenure, SEBI worked at a frenetic pace to write new regulations, bring new segments under the regulatory fold, and pass orders against fraudulent actors who used the roaring bull market to dupe investors. SEBI issued nearly 200 consultation papers and 600 orders within a three-year span. This furious pace of regulation contributed to high regulatory uncertainty. Dictating the fees to be charged by advisors and analysts, a proposed switch from scheme-wise to fund-house-wise fee caps for mutual funds, requiring SMEs to declare quarterly results and a T+0 settlement cycle were some instances of SEBI trying to fix systems that weren’t really broken.
Going forward, a thorough impact assessment of draft regulations before they are written into law, can aid market development and provide regulatory certainty. Improved investigative and legal capacity can bolster SEBI’s enforcement record. However, SEBI should respond carefully to complaints from market participants on existing regulations and their contribution to ‘unease’ of doing business. Many long-standing regulations that govern India’s capital market ecosystem today — the ground rules for mutual funds and stock brokers, LODR (Listing Obligation and Disclosure Requirement), Prohibition of Insider Trading, Issue of Capital and Disclosure and Prevention of Fraudulent and Unfair Trade Practices Regulations — have evolved from regulatory learnings over three decades, arising from SEBI’s prosecution of hundreds of cases of market misconduct.
Hence, stock brokers face stiff rules on client fund segregation as a direct consequence of the Karvy Stock Broking scam. Strict vetting of IPOs is an outcome of massive IPO scams in 1994-95 and again in 2010-11. Likewise, tight insider trading and front running rules are the result of dozens of cases where institutional insiders profited from unpublished information. Overall, SEBI under Pandey should hasten slowly in the matter of dismantling old regulations. or in writing new ones.
Published on May 12, 2025
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