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# India’s Market Regulator Plans Sweeping Reforms to Attract Foreign Investment
New measures aim to streamline registration, lower trading costs, and ease short-selling restrictions in a bid to revitalize Indian equity markets.
India’s Securities and Exchange Board (SEBI) is preparing a series of significant reforms designed to attract greater foreign investment into the nation’s equity markets.The initiatives, announced on Wednesday by SEBI Chairman Tuhin Kanta pandey, focus on accelerating the registration process for investors, reducing the cost of trading in cash equities, and simplifying the mechanics of short-selling. These changes come at a critical juncture, as foreign investors have pulled nearly $17 billion from Indian equities this year, and the country’s economy navigates challenges posed by U.S. tariffs on its exports.
Did you know? – India’s derivatives market is over 300 times larger than its cash market, raising concerns about speculation and prompting SEBI to consider new rules.
Pandey, who assumed his role in march, has quickly prioritized creating a more welcoming regulatory habitat for both foreign and domestic investors. He indicated a shift away from stricter rules implemented in previous years,signaling a proactive approach to bolstering market confidence.”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 stated. “Our objective is to make it into a few days, not even a month.”
Deepening Cash Market Liquidity
Beyond registration speed, SEBI is actively reviewing regulations to enhance liquidity in India’s cash equity markets. While acknowledging improvements in recent years, Pandey emphasized the need for further progress. “while the liquidity in cash markets has improved in the last few years we want it to improve further,” he said. The regulator is considering adjustments to margin requirements for cash trading, though specific details remain undisclosed.
pro tip: – SEBI is considering reducing margin requirements for cash trading to boost liquidity, but details are still being finalized.
A notable disparity exists within india’s securities markets: the size of the derivatives market is more than 300 times that of the cash market. This imbalance has fueled speculation in futures and options,notably among retail investors,prompting SEBI to seek ways to moderate market activity. The regulator is also exploring the implementation of “product suitability” rules, wich would restrict access to complex derivatives products for less experienced investors.though, Pandey stressed the importance of a measured approach, stating, “We will frist have to look at the measures already in place… We need a certain stability of approach in the way we assess this problem.”
Boosting Short-Selling and Streamlining Settlement
SEBI is also turning its attention to the short-selling market, recognizing its current limitations. The regulator plans to review existing rules governing short-selling and the associated borrowing and lending of securities. “We have to look at costs. If the transaction cost is too high the activity will not take place,” Pandey explained.
Reader question: – Will SEBI allow netting to reduce capital requirements? The central bank currently prohibits it, but a phased approach is being considered.
Moreover, SEBI is discussing the potential for “netting,” a practice that allows investors to offset buy and sell orders, thereby reducing capital requirements.Currently,India’s central bank prohibits netting,but Pandey suggested a phased approach might be possible. “Perhaps netting in the same scrip may not be possible but in different scrips is absolutely possible. If we do that, that will be a big facilitative step,” he said.
Responding to feedback from foreign investors, SEBI has also decided to postpone its plans to transition to a T+0 (same-day) settlement system, maintaining the current T+1 settlement cycle for the time being. this decision reflects a
