Sebi Proposes Single Investor Protection Fund For Equity And Commodity Investors

Capital markets regulator Securities and Exchange Board of India (Sebi) has proposed merging the Investor Protection Funds (IPFs) of equity and commodity derivatives segments. This is a part of the regulator’s larger plan to simplify rules for stock exchanges and clearing corporations, and improve ease of doing business.

With the merger of IPFs maintained separately for equity and commodity markets, the regulator aims to create a unified framework for investor protection across segments and simplify the administration of the funds.

Sebi has started a broad review of rules governing stock exchanges, clearing corporations and commodity derivatives exchanges, including technology-related regulations. The move is aimed at easing compliance and improving the ease of doing business in the securities market by simplifying regulations, removing outdated rules and reducing reporting requirements for market infrastructure institutions.

In a press release on June 22, Sebi said the exercise is in line with its “optimal regulation” approach and involves consultations with stakeholders across the market ecosystem.

The review covers master circulars for stock exchanges, clearing corporations and commodity derivatives, and includes steps such as removing redundancies, delegating responsibilities and rationalising periodic filings. Sebi has already issued four consultation papers as part of this exercise.

The regulator has also proposed reviewing the client code modification framework, an area that has historically attracted regulatory scrutiny due to concerns over misuse and post-trade alterations. The proposed review could lead to a more streamlined mechanism while retaining oversight safeguards.

Sebi also proposed to introduce liberalised norms for liquidity enhancement schemes. Such schemes are designed to improve trading activity and market depth by incentivising market makers and participants, potentially improving price discovery and reducing trading costs for investors.

Sebi has also proposed a clearer delineation of responsibilities for monitoring position limits across products. This is intended to strengthen oversight of excessive exposures in derivatives markets and improve accountability among market participants and market infrastructure institutions.

In commodity derivatives, the regulator has proposed discontinuing the close-to-money (CTM) norms for options in goods. The change is expected to simplify the framework for commodity options contracts.

Apart from investor-related measures, Sebi has proposed a broad restructuring of the regulatory architecture governing exchanges and clearing corporations.

The regulator has proposed a single master circular for stock exchanges by merging the existing provisions for stock exchanges and commodity derivatives exchanges. It also plans to issue a separate master circular for clearing corporations. In addition, common IT-related rules for market infrastructure institutions will be brought together under one dedicated circular to streamline the framework.

According to Sebi, the revised framework could reduce the size of the exchange master circular by nearly 50 per cent through the removal of redundant and obsolete provisions.

The regulator has also proposed discontinuing several periodic reports currently submitted to Sebi, with some responsibilities being delegated to internal committees of market infrastructure institutions or shifted to website disclosures.

On the intermediary side, Sebi has proposed doing away with the registration requirement for investment managers providing Direct Market Access (DMA) facilities. It has also suggested introducing a single-window registration mechanism for brokers offering Smart Order Routing (SOR) facilities.

The press release also stated that the regulator has proposed a review of the system and network audit framework applicable to market infrastructure institutions and ongoing rationalisation of technology-related regulations.