SEBI Aims to Streamline Registration Process
India’s securities regulator is pushing through significant reforms to make the country’s stock markets more attractive to foreign investors. The Securities and Exchange Board of India (SEBI), under new chairman Tuhin Kanta Pandey, is focusing on cutting red tape and reducing trading costs to reverse the trend of foreign capital outflows.
Pandey, who took over in March, has identified the lengthy registration process as the top complaint from international investors. “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 told Reuters. The regulator now aims to reduce registration times to just a few days instead of the current month-long process.
Addressing Market Liquidity and Costs
The reforms come at a critical time. Foreign money managers have pulled nearly $17 billion from Indian stocks this year, while the economy faces pressure from steep US tariffs on Indian exports. SEBI is reviewing multiple regulations, including deposit requirements for share trading and ways to improve liquidity in cash markets.
“While the liquidity in cash markets has improved in the last few years we want it to improve further,” Pandey said. The regulator is also examining transaction costs, with Pandey noting that “if the transaction cost is too high the activity will not take place.”
Derivatives Market Concerns
One notable aspect of India’s financial markets is the massive size of the derivatives market compared to regular stock trading. The derivatives segment has grown to more than 300 times the size of the cash market, driven by explosive growth in futures and options trading among retail investors.
SEBI has been trying to curb excessive speculation in derivatives, particularly among small investors who may not fully understand the risks. “We have highlighted the problem that there is irrational exuberance of some of the players, whom we consider not really adequately informed about the risks in the market,” Pandey explained.
The regulator is considering “product suitability” rules that would make it harder for inexperienced investors to access complex derivatives products. However, Pandey emphasized that SEBI will first assess the impact of recent measures before implementing new restrictions.
Short-Selling and Settlement Reforms
SEBI is also reviewing short-selling regulations and the securities lending and borrowing system, which Pandey described as “pretty shallow” currently. Another significant proposal involves allowing “netting” – a process that lets investors combine buy and sell transactions to reduce the capital required for trades.
“Perhaps netting in the same scrip may not be possible but in different scrips is possible. If we do that, that will be a big facilitative step,” Pandey said. This change would be particularly beneficial for foreign investors, though it would require approval from India’s central bank, which currently doesn’t permit netting.
In a concession to foreign investor concerns, SEBI has postponed plans to move to same-day settlement, maintaining the current next-day system for now. The combination of economic challenges and ongoing trade negotiations with the United States has increased the urgency for these market reforms as policymakers work to maintain investor confidence in Indian markets.
