 "SEBI")
In 2024, the Securities and Exchange Board of India (Sebi) implemented significant reforms, focusing on cooling down the derivatives segment, enhancing transparency and accountability in small and midsized enterprise (SME) listings, and deepening the fund management ecosystem. Sebi also introduced the ambitious same-day settlement cycle, a first in global markets. However, the year was marred by controversy surrounding Chairperson Madhabi Puri Buch, who faced allegations of conflict of interest. These allegations overshadowed some of Sebi’s key reform initiatives and somewhat slowed the reform process, experts feel.
Amid concerns over widespread losses suffered by small investors, Sebi introduced six measures aimed at curbing the derivatives frenzy. While still in the early stages, following the implementation of some of these measures, trading activity has decreased by more than 30 per cent in the futures and options segment. The move to discontinue weekly expiries in all but two index derivatives was among the measures that hit speculators hard.
Another major step taken by the regulator was tightening norms on listing and disclosure for SMEs following several cases of alleged manipulation and fictitious transactions. To ensure only companies with a sound track record raise funds and get listed, Sebi has introduced several checks on the quality of companies exploring this route.
Sebi also introduced same-day settlement (T+0) for secondary market trading on an optional basis in March. Although this innovative move aimed to reduce settlement risks and enhance market efficiency, the beta version saw limited adoption, with negligible response from brokers and market participants. To boost participation, Sebi plans to expand eligibility to the top 500 stocks in 2025 while maintaining the optional nature of the mechanism.
Similarly, Sebi is also trying to implement a Unified Payments Interface (UPI)-based block mechanism for the secondary market. This aims to safeguard client funds but will also impact the float amount lying with brokers. Sebi also directed brokers to charge true-to-label fees, which is expected to upend the low-cost broking model.
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Sebi’s initiative to enable the direct payout of securities to clients’ dematerialised accounts, bypassing brokers’ pools, failed to gain traction in 2024. Although launched, the facility was rolled back within a day due to technical issues. Sources revealed that market infrastructure institutions (MIIs) are addressing these issues, with an expected update by mid-January.
The year also saw the emergence of a new mutual fund asset class, offering diverse strategies and filling the gap between portfolio management services and alternative investment funds. With a minimum investment requirement of Rs 10 lakh, several mutual funds are developing products in this space, awaiting clarity from the Association of Mutual Funds in India before launching.
The regulator also cracked down on financial misinformation in 2024, introducing measures to curb manipulation by financial influencers. Key actions include restricting registered entities from associating with unregistered players, aiming to promote transparency and protect investors.
The regulator also endeavoured to enhance reforms around ease of doing business and undertake a more transparent consultation process.
“Just as the year draws to a close, Sebi has announced the codification of the public consultation process for making and amending regulations. The fact that the rationale for acceptance or non-acceptance will be made public is an excellent aspect to include in the legislative architecture,” said Ketan Dalal, managing director of Katalyst Advisors.
The year also marked the closure of the National Stock Exchange (NSE) colocation case related to the misuse of trading access points, which had stretched over nine years with several matters in different tribunals and courts. The market regulator disposed of the proceedings against NSE, its former managing director and chief executive officer, and eight others for a highest-ever settlement amount of Rs 643 crore.
“The controversy highlighted the risks of imbalances in access to critical trading infrastructure and served as a wake-up call for the need to uphold public trust. These lessons reinforce the ongoing relevance of implementing strong safeguards to maintain a level playing field and protect the integrity of financial systems,” said C S Anupriya Saxena, partner of JMJA & Associates.
In August, Sebi was rattled first by US-based Hindenburg Research and later by Opposition Congress raising the issue of conflict of interest over the income generated by Puri Buch and her husband’s consultancy firm, Agora Advisory.
While Puri Buch refuted all the allegations and found support from corporates and the government, the controversy somewhat slowed the reform process.
Further, protests by Sebi staff against a “toxic work culture” also impacted the day-to-day functioning of the regulator. Initially, Sebi blamed “external elements” for the protests, but it later withdrew its statement.
Industry sources say while Sebi will continue to push ahead with several reform measures it has initiated, it may only take up large-scale changes once there is more clarity around the appointment of a new Sebi chief or the extension of the current chief’s term. Puri Buch’s three-year tenure is set to end on March 1.
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