Major Reforms Set to Dominate Agenda at Upcoming SEBI Board Meeting

At the upcoming first board meeting under the leadership of newly appointed Chairperson Tuhin Kanta Pandey, the Securities and Exchange Board of India (SEBI) is set to deliberate on several key regulatory proposals. The agenda includes introducing UPI-like safeguards for demat accounts, reinforcing the autonomy of clearing corporations, widening the definition of qualified institutional buyers (QIBs), and modifying the fee collection mechanism for research analysts.

UPI-Like Protections for Demat Accounts

To bolster investor security, SEBI has proposed a framework akin to the Unified Payments Interface (UPI) for demat accounts. The proposal, introduced on February 18, recommends linking each investor’s unique client code to the SIM card of their mobile device. This initiative aims to curb unauthorized access, identity fraud, SIM spoofing, and other financial threats.

The introduction of such a mechanism is expected to add an additional layer of authentication, ensuring that stock market transactions remain secure and free from potential cyber risks. Industry experts believe that this measure could significantly enhance investor confidence, particularly at a time when digital fraud in financial transactions is on the rise.

Independence of Clearing Corporations

Another crucial topic on SEBI’s agenda is ensuring the independence of clearing corporations (CCs) from their parent stock exchanges. In November 2024, SEBI board member Ananth Narayan underscored the necessity of reassessing the current structure. While Indian CCs are fully owned by their respective exchanges, global best practices often position them as independent public utilities catering to all market participants.

Market analysts argue that greater autonomy for CCs could lead to improved risk management and better governance standards. If implemented, this change would align India’s regulatory framework with international norms, potentially making the country’s financial markets more attractive to global investors.

Stricter Rules for ESG Rating Providers

Additionally, SEBI is expected to introduce stricter norms for ESG (environmental, social, and governance) rating providers. Proposed regulatory changes encompass rating withdrawal protocols, enhanced disclosure requirements, governance standards, and mandatory audits.

For ratings under the "subscriber pays" model, SEBI suggests that withdrawals be permitted only when there are no active subscribers. Meanwhile, under the "issuer pays" framework, the regulator proposes conditions such as a minimum three-year rating duration and approval from at least 75% of bondholders before withdrawal.

The growing importance of ESG compliance in investment decisions has prompted SEBI to tighten regulations in this sector. These changes aim to enhance transparency and credibility in ESG ratings, ensuring that investors have access to reliable data when making financial decisions based on environmental and social factors.

SEBI’s Focus on Investor Awareness

Chairperson Pandey recently emphasized SEBI’s commitment to leveraging technology for improving efficiency, transparency, and investor protection. Speaking at a media event, he stressed that the regulator aims to minimize systemic risks and create a safer investment environment.

"An informed investor is a protected investor. SEBI’s goal in the coming days will be to enhance awareness among both current and potential investors," Pandey stated.

To this end, SEBI is likely to launch new investor education initiatives, including digital campaigns, workshops, and awareness programs across different regions of India. Strengthening investor knowledge is expected to reduce market malpractices and improve participation in equity markets, particularly among retail investors.

Expansion of Qualified Institutional Buyers (QIBs)

In another proposed regulatory shift, SEBI intends to expand the definition of Qualified Institutional Buyers (QIBs) to include Accredited Investors for angel funds. The proposal, introduced on February 21, seeks to enable angel funds to raise capital beyond the existing 200-investor limit set by the Companies Act.

This change could provide a significant boost to India’s startup ecosystem by allowing more investors to participate in early-stage funding rounds. Experts believe that easing restrictions on angel fund investments will help startups access a broader pool of capital, fostering innovation and entrepreneurship in the country.

Looking Ahead

As SEBI gears up for its board meeting, market participants will be closely monitoring the outcomes of these regulatory discussions. The proposed changes reflect SEBI’s proactive approach toward strengthening investor protection, market integrity, and financial market infrastructure. If successfully implemented, these reforms could significantly impact the functioning of India’s capital markets, making them more secure, efficient, and globally competitive.

Industry stakeholders, including brokerage firms, institutional investors, and regulatory experts, are expected to weigh in on these proposals in the coming weeks. While some changes may face resistance due to operational challenges, SEBI’s commitment to maintaining a robust and transparent regulatory framework will likely drive forward key policy shifts in the financial markets.