SEBI’s Proposed Trading Rules Revamp

Source: Mint

Context:

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a major overhaul of trading regulations by simplifying legacy rules and delegating greater supervisory powers to stock exchanges.

What is Being Proposed?

• Consolidation of trading norms into a single framework by:
  • Revising the Master Circular for Stock Exchanges and Clearing Corporations (MSECC)
  • Revising the Master Circular for Commodity Derivatives (MCCD)
• Objective:
  • Remove outdated provisions
  • Streamline compliance
  • Update rules that are over a decade old

Key Proposed Changes

1. Higher Net-Worth Requirement for Margin Trading Facility (MTF)
   • Increase minimum net worth for brokers from:
     • ₹3 crore → ₹5 crore (or higher if exchanges decide)
   • Existing norm introduced in 2004, last revised in 2022
2. Liquidity Enhancement & Market Making
   • Merge Liquidity Enhancement Schemes (LES) into a single principle-based framework
   • Remove obsolete market-making provisions
   • Aim:
     • Improve liquidity
     • Ensure better price discovery
     • Reduce volatility in thinly traded securities
3. Operational Simplification
   • Align timelines for:
     • Net-worth statements
     • Auditor certificates
   • Reduce duplicative and low-value compliance filings

Shift in Regulatory Approach

• SEBI proposes to delegate routine supervision to stock exchanges:
  • Exchanges become first-line regulators
  • Powers include:
    • Setting net-worth norms for MTF brokers
    • Examining surveillance alerts
    • Levying penalties via member committees
• SEBI to focus more on:
  • Policy-making
  • System-level oversight