SEBI proposes major changes to Stock exchange trading: Simplified rules & compliance

New Delhi: Market regulator SEBI on Friday proposed major changes in the framework for trading on stock exchanges, which aim to simplify the rules, eliminate duplication and reduce the burden of compliance for market participants. These proposals are part of SEBI's big initiative to promote ease of doing business in stock exchanges, including commodity derivatives exchanges.

In its consultation paper, SEBI has provided several overlapping provisions related to trading, price bands, circuit breakers, bulk and block deal disclosures, call auction mechanisms, schemes to increase liquidity, Margin Trading Facility (MTF), Unique Client Code (UCC), PAN requirements, trading hours and daily price limits in a single form applicable to both equity and commodity segments, suggested to be merged in the Consolidated Framework.

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SEBI suggested that the provisions specifically applicable to clearing corporations should be separated and put in a dedicated master circular so as to avoid regulatory overlap. To improve transparency, SEBI has proposed to combine bulk and block deal disclosures and disclose the information at the client PAN level instead of the UCC level, which will reduce the need for manual reporting for brokers.

The regulator has suggested that market-wide circuit breaker rules, dynamic price band flexing, IPO price bands, and call auction procedures should be introduced in tabular form, while many duplicate or outdated operational examples should be removed. The regulator has also proposed to rationalize the MTF rules, including increasing the minimum net worth requirement for brokers from Rs 3 crore to Rs 5 crore or more as stated by exchanges.

The deadline for submission of net-worth and auditor certificates should be matched with the financial reporting cycle and unnecessary due diligence clauses should be removed.

The old market-making provisions for the cash segment should be removed and merged into a principle-based Liquidity Enhancement Scheme (LES) framework that now covers equities, derivatives, and commodities alike. SEBI has proposed that under the revised framework, exchanges will have more flexibility in designing schemes, conducting half-yearly board reviews and giving incentives, which will have higher limits for new exchanges or new segments.

Several outdated provisions, including negotiated-deal exemptions, guidelines for a dedicated debt segment, forward contracts in commodities, MOU-based trading and unnecessary reporting requirements, have been proposed to be scrapped.

Trading hours in all segments, including equity, derivatives, commodities, currency, RFQ, EGR and social stock exchanges, will be consolidated into a single section. Client code modification rules will be simplified to allow correct corrections, allow multiple PAN-linked UCCs for specific client categories, simplify obligation transfer between FPI family accounts, increase the exemption frequency to once a month, and discontinue quarterly exemption reporting to SEBI. Penalties between exchanges and clearing corporations will also be equalised.

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The provisions of short-selling and securities lending and boring (SLB) will be cleaned up and incorporated into the core framework, which will require daily disclosures and the responsibilities of exchanges and CCs will be clearly laid out. Commodity-specific disclosures, such as hedger delivery intent, open interest data, and risk disclosures by listed companies, will also be part of the Unified Circular.

SEBI has also proposed to update the provisions on UPI-based trading with the amount blocked in the secondary market, while the settlement related aspects will be shifted to the CC Master Circular.