Balancing Regulation and Innovation: Insights from Sebi Chief at the Mint India Investment Summit 2025
At the recent Mint India Investment Summit and Awards 2025 held in Mumbai, the Chief of the Securities and Exchange Board of India (Sebi), Tuhin Kanta Pandey, emphasized the delicate balance regulators must maintain between fostering innovation and ensuring market stability. His remarks come at a critical juncture as Sebi implements new measures aimed at curbing excessive speculation in derivatives trading.
The Complexity of the F&O Market
Pandey described the Futures and Options (F&O) market as inherently complex, likening regulatory approaches to the precision of a surgeon’s knife rather than the blunt force of a sledgehammer. This metaphor underscores the necessity for nuanced, data-driven regulation that can adapt to the evolving landscape of financial markets. He cautioned that overly rigid regulations could stifle innovation, which is essential for market growth and efficiency.
Recent Measures to Curb Speculation
In light of rising concerns about speculative trading, Sebi introduced several measures on October 1, aimed at stabilizing the derivatives market. These include increasing the contract sizes for index trading and limiting the frequency of weekly expiries. Additionally, a proposal to revise the ₹500 crore exposure limit for index F&O is under review, following pushback from market participants who argue that such changes could reduce liquidity and widen bid-ask spreads, ultimately increasing trading costs.
Addressing Retail Participation
Pandey also tackled the issue of retail investor participation in the F&O market. He noted that merely raising the investment threshold for retail investors would not address the systemic issues at play. A Sebi study revealed that over 90% of small derivatives investors were losing money, indicating a pressing need for comprehensive solutions that enhance investor awareness and address underlying market challenges.
Governance and Independence of Clearing Corporations
Another significant topic addressed by Pandey was the governance of clearing corporations (CCs). He revealed that the proposed reduction of stock exchanges’ stakes in CCs is a key factor delaying the National Stock Exchange’s (NSE) initial public offering (IPO). The regulator has raised concerns about potential conflicts of interest stemming from the NSE’s dominant ownership of NSE Clearing Ltd (NCL). To ensure a level playing field among market infrastructure institutions, Sebi is advocating for greater independence of CCs.
In November 2024, Sebi proposed a plan to distribute 49% of CC shares to existing shareholders of the parent exchange, with the aim of reducing the parent exchange’s stake to below 15% over time. This proposal is still pending approval, as Sebi seeks clarity on how these governance concerns will be addressed.
Streamlining Regulations for Registered Investment Advisors
Pandey also highlighted the challenges faced by registered investment advisors (RIAs) in India, particularly the high entry barriers and cumbersome regulations that hinder their ability to showcase performance. Currently, RIAs are restricted from displaying their performance over the last year, which limits their ability to attract clients. Sebi is committed to streamlining these regulations to reduce compliance burdens and lower the cost of doing business.
Commitment to Expedited Fundraising
In addition to regulatory reforms, Pandey emphasized Sebi’s commitment to expediting fundraising processes in the markets. By leveraging technology, including artificial intelligence, Sebi aims to facilitate quicker clearance of fundraising documents while maintaining necessary disclosure standards. This approach is expected to enhance market efficiency and attract more participants.
Conclusion: A Call for Compliance and Cooperation
As the regulatory landscape continues to evolve, Pandey urged market participants to voluntarily comply with regulations and work collaboratively with Sebi. He reiterated the importance of a balanced approach to regulation—one that safeguards market integrity while fostering innovation. By addressing systemic issues and streamlining regulations, Sebi aims to create a more robust and inclusive financial ecosystem that benefits all stakeholders.
In summary, the insights shared by Sebi’s chief at the Mint India Investment Summit reflect a proactive and thoughtful approach to regulation, emphasizing the need for precision, flexibility, and collaboration in navigating the complexities of the financial markets.