SEBI’s Regulatory Overhaul – Strengthening Corporate Governance and Deepening Capital Markets

SEBI’s Regulatory Overhaul Latest News

• The SEBI, under Chairman Tuhin Kanta Pandey, has initiated a comprehensive review of several market regulations to enhance corporate governance, market efficiency, investor protection, and capital market depth. 
• The reforms cover areas such as disclosure norms, delisting regulations, derivatives markets, independent directors, foreign investor access, AI governance, and debt market development.

Why is SEBI Reviewing Market Regulations?

• India’s capital markets are expanding rapidly, driven by technological innovation, rising retail participation, and increasing global investor interest. 
• To keep pace with evolving market realities, Securities and Exchange Board of India (SEBI) aims to:
  • Strengthen corporate governance standards.
  • Improve transparency and disclosure mechanisms.
  • Facilitate easier access for domestic and foreign investors.
  • Enhance market liquidity and risk management.
  • Support emerging sectors requiring long-term capital.
  • Integrate technological advancements such as Artificial Intelligence (AI) into market regulation.

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Review of Listing and Delisting Frameworks

• Strengthening disclosure norms: SEBI is reviewing the Listing Obligations and Disclosure Requirements (LODR) framework to make it more responsive to emerging governance, compliance, and disclosure challenges.
• Reforming delisting regulations:
  • The regulator is also reassessing the delisting framework to ensure that capital markets provide both:
    • Fair entry for companies seeking public capital.
    • Fair exit for firms wishing to delist.
  • This is expected to improve market efficiency and investor confidence.

Enhancing the Role of Independent Directors (IDs)

• Beyond traditional oversight:
  • SEBI emphasized that IDs must move beyond merely questioning management decisions. 
  • Their responsibilities should include contributing to strategic discussions on AI; cybersecurity; Environmental, Social and Governance (ESG) issues; R&D; and technological disruptions.
• Capacity building initiative: To improve board effectiveness, SEBI plans to establish a scalable capacity-building network for IDs.
• Protection of Minority shareholders: IDs are expected to safeguard minority shareholder interests while promoting sustainable long-term value creation.

Other Proposals

• Facilitating foreign investment:
  • Simplified KYC norms: SEBI plans to simplify Know Your Customer (KYC) requirements for: Foreign Portfolio Investors (FPIs), and Non-Resident Indians (NRIs).
  • Risk-based disclosure framework: Disclosure requirements for foreign investors will be reviewed using a risk-based approach, providing greater clarity and ease of participation for global capital.
• Deepening equity and derivatives markets:
  • Review of short selling and securities lending:
    • SEBI is comprehensively reviewing Securities Lending and Borrowing (SLB) framework, and Short-selling regulations.
    • The objective is to strengthen linkages between cash and derivatives markets, improve liquidity, and facilitate better price discovery.
  • Development of long-term derivative products:
    • SEBI intends to encourage longer-duration futures contracts, and longer-term options contracts.
    • This will broaden hedging opportunities and deepen market participation.
  • Bond index derivatives: In collaboration with the Reserve Bank of India (RBI), SEBI plans to introduce derivatives based on bond indices, expanding the range of fixed-income market instruments.
• Reforms in commodity derivatives:
  • SEBI’s proposals aim to improve participation and risk management through:
    • Extending early pay-in benefits to options contracts.
    • Reviewing position limits.
    • Gradual shift from cash settlement to physical settlement in selected agricultural commodity contracts.
  • These measures are expected to improve market integrity and efficiency.
• Review of municipal debt and portfolio management regulations:
  • SEBI is also reassessing regulations related to municipal debt instruments, and Portfolio Management Services (PMS).
  • The objective is to address operational challenges faced by stakeholders and ensure these frameworks continue to support market development.

Supporting Strategic and Emerging Sectors

• Revamping the Innovators Growth Platform (IGP):
  • SEBI is reviewing the Innovators Growth Platform to facilitate capital raising for high-growth sectors such as AI, semiconductors, clean energy, biotechnology, advanced materials, and defence technology.
  • The objective is to improve access to long-term financing for innovation-driven industries.
• Development of debt markets:
  • Corporate bond market reforms: SEBI is working on a market-making framework for corporate bonds, greater liquidity in debt markets.
  • Municipal bond market expansion: Efforts are underway to deepen the municipal bond market, enabling urban local bodies to access market-based financing for infrastructure development.
  • Tokenization of corporate bonds: SEBI is exploring tokenization of corporate bonds, reflecting the increasing role of financial technology in capital markets.
• AI as a regulatory priority:
  • Opportunities: AI can significantly improve market surveillance, fraud detection, risk assessment, and investor services
  • Risks: SEBI recognizes concerns relating to algorithmic opacity, bias, data privacy, cybersecurity, accountability
  • Regulatory framework: SEBI plans to issue detailed guidelines for the responsible use of AI in capital markets and integrate the International Organization of Securities Commissions (IOSCO) AI Supervisory Toolkit into its regulatory approach.

Conclusion

• SEBI’s proposed reforms represent a broad-based effort to modernize India’s capital market architecture. 
• By combining governance reforms, market deepening measures, technological oversight, and easier investor access, the regulator seeks to create a more resilient, transparent, and globally competitive financial ecosystem.

Source: IE