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SEBI's Revolutionary Ideas to Restructure the Stock Market

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The Securities and Exchange Board of India is the sole regulatory authority overseeing the actions of every player in the Indian securities market. From laying the foundation to introducing tech-advanced changes like dematerialisation, online trading, and risk management strategies, SEBI has revolutionised the market for investors.

Read on as we discuss SEBI’s revolutionary ideas that have structured the Indian stock market. 

Overview of SEBI's New Initiatives

SEBI has introduced several changes over the years that have helped Indian investors and streamlined the trading landscape for the better. If one were to look at the overview of SEBI’s initiatives, the following aspects can not be missed:

  • Dematerialisation

  • Trading Cycle

  • Risk Management through Settlement Guarantee 

  • Better Disclosure Standards 

  • Fraud Detection and Overall Better Security and Privacy

Key Changes Proposed by SEBI

Let’s take a look at the key changes proposed by SEBI to regulate the securities market through enhancements in market integrity and investor protection: 

  • LODR Regulations

Listings Obligations and Disclosure Requirements (LODR) Regulations, 2024 has been introduced with key amendments:

  • Introduction of “New Market Cap Formula” adopting a 6-month average calculation. 

  • Accurate reaction from key executives to address rumours.

  • Linking rumour verification to material prices.

  • Safeguarding the Transfer of Dematerialised Securities

The biggest challenge faced by Indian investors was the lack of security in the transfer of dematerialised securities. Reviewing the October 2023 guidelines, SEBI has emphasised focusing on educating investors on Delivery Instruction Slips and implementing rigid verification processes for transactions. 

  • Expanding the Framework for Qualified Stock Brokers

To ensure better compliance with guidelines for the QSBs, SEBI has introduced new parameters of judgement including compliance score, grievance redressal score and proprietary trading volumes.  

  • New Margin Rules

SEBI’s new margin rules for 2024 have been making it to the top of SEBI's latest news. These rules were introduced for transparency and accountability on the part of the brokers. What’s interesting is that now brokers have to collect the margin money upfront and the stocks purchased through margin trading will remain the account of investors enabling them to enjoy all corporate benefits. 

  • Regulation of Derivatives Market

SEBI is looking to strengthen the framework for providing clearance for the inclusion of stocks in the derivatives segment as these were last reviewed in 2018.  

  • Development of Secondary Market

Since the Indian securities market is vast, SEBI has proposed to introduce new institutions like exchange and clearing houses focusing on better assessment and regulation.  

Impact on Market Participants

The new rules and guidelines proposed by SEBI will have positive impacts on market participation as they were introduced primarily to protect the interests of the investors. The key areas that these rules focused on that will bring positive impacts are:

  • Enhanced Safety

  • Transparency and Accountability on the Broker’s part.

  • Enhanced Margin Trading Facility to expand the purchasing power of investors. 

  • Safe and Secure Transfer of Shares

  • Overall updated Rules for Assessment and Regularisation

Benefits of the New Regulations

Changes brought through SEBI’s new regulations are majorly focused on creating a safer environment for investors. Let’s take a look at the benefits of the new SEBI regulations:

  • Safer Transactions

Despite having multiple rules and guidelines to put safe transactions in place, there were many instances where brokers would defraud investors or use investor’s money for private gains. With the introduction of new regulatory guidelines and a special emphasis on blockchain, investors can expect safer transactions while purchasing, selling or transferring securities. 

  • Transparency

LODR regulations, 2024 have introduced a long line of mandates for disclosures that brokers/companies have to make for their shares in the stock market. This would help investors make better-informed choices while putting in their money.  

  • Enhanced Margin Trading Facility

Margin trading plays a significant role for Indian investors. The new rules have made it mandatory for brokers to take margin money upfront, eliminating the chances of charging hidden fees or changing interest rates. 

Challenges and Criticisms

SEBI’s new rules have received praise but at the same time, experts have analysed the challenges and criticism stemming from the lack of a wholesome approach. 

Here are a few challenges and criticisms:

  • The Inability to Prevent Insider Trading

Despite the regulatory framework, SEBI has struggled to implement a robust strategy for detecting and preventing insider trading. Individuals with privileged information continue to exploit the market, as evidenced by high-profile cases like the Satyam Scam and the Punjab National Bank Scam, which underscore SEBI's limitations in effectively curbing such misconduct.

  • Operational Challenges

In the new regime proposed by SEBI, complete disclosures have been made mandatory and objective as opposed to the previous regime where companies had the liberty to determine what was material and required disclosure. Now, although this would facilitate transparency, companies have not been provided a structured framework of disclosures regarding disputes, litigations, agreements, loans, ratings, verifications of rumours and many more. 

  • Lack of Strict Regulation

SEBI has proposed the introduction of separate assessing houses to regulate the market but it continues to lack strict regulation of the market intermediaries like brokers or investment advisors. Market intermediaries continue to find loopholes to commit fraudulent activities resulting in unfair loss for investors. 

Expert Opinions on SEBI's Proposals

According to reports, SEBI's new rules have had a significant impact on the stock market, with both positive and negative outcomes. Experts have described these regulations as "investor-friendly." B. Gopkumar, Managing Director and CEO of Axis Securities commented that the new mechanism grants more power to investors and enhances transparency in the broking ecosystem.

Rajesh Baheti, Director at the Association of National Exchanges Members of India (ANMI), also expressed his approval of the proposal for New Margin Rules. He noted that most online brokers were already requiring cash or securities upfront on the day of trade due to the nature of their business, as they often do not know their customers well. Baheti added that these changes would primarily affect offline brokerages, which have traditionally relied on customer relationships and allowed post-paid transactions, taking money and stocks the day after the trade was placed. 1

Conclusion

SEBI plays a vital role in the Indian stock market by introducing new regulatory laws and keeping a close monitor on every movement of brokers and traders. Changes to the emphasis on transparency and accountability on the part of the brokers have brought some relief for investors. However, the operational challenges and strict laws are areas that need a better framework. 

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Frequently Asked Questions

Why is SEBI looking to restructure the stock market?

Answer Field

SEBI is looking to restructure the stock market to introduce better regulatory reforms and transparency in the system to eliminate fraudulent activities. 

What are some key revolutionary ideas proposed by SEBI?

Answer Field

SEBI has proposed several revolutionary ideas like New Margin Rules, New Asset Classes, Disclosure provisions, Regulations for the Derivatives Market and Developing a Secondary Market.

How will blockchain technology impact the stock market?

Answer Field

Incorporating Blockchain technology in the stock market will bring efficiency, and transparency and promise overall safety for investors. 

How can investors stay informed about SEBIs new regulations?

Answer Field

SEBI’s new regulations are updated instantly on their official website or investors can choose a credible trading platform like Bajaj Trading to get the latest SEBI latest news and updates.

How will corporate governance norms be strengthened?

Answer Field

The new LODR regulations have emphasised strengthening corporate governance by enhancing disclosures, mandatory listings and objective approach in determining what material needs to be disclosed.

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