Strengthening Trust in the Stock Market

Tuhin Kanta Pandey, the newly appointed Chairman of the Securities and Exchange Board of India (SEBI), has clearly outlined regulatory reform as a key focus of his leadership. Backing words with action, he has initiated concrete steps to simplify, streamline, and modernise the regulatory framework. In a significant move, SEBI’s 210th board meeting held on June 18 saw the approval of a series of amendments designed to enhance various facets of market regulation and governance.

Some of these changes were long overdue, while others—though technical—have the potential to quietly reshape market operations. The regulatory revisions target various stakeholders, including Promoters, Public Sector Undertakings (PSUs), Merchant Bankers, Investment Funds, and Foreign Portfolio Investors (FPIs). Finalised after public consultations conducted in April and May 2025, the reforms are designed to simplify compliance processes, enhance transparency, and promote greater ease of doing business across the capital market ecosystem.

Although some of the changes may appear procedural at first glance, they carry the potential to significantly influence how India’s capital markets operate. The reforms touch upon multiple areas, including disclosure requirements, compliance obligations, and governance standards, each aimed at making the system more transparent, efficient, and business-friendly. SEBI’s recent measures not only reinforce trust in the stock market ecosystem but also signal a conscious shift away from past criticisms of regulatory overreach and micro-management.

Different strokes of SEBI

Promoters and major shareholders must now hold their shares in dematerialised (demat) form before submitting a Draft Red Herring Prospectus (DRHP). This requirement applies to ten categories of shareholders, including Promoters, Key Managerial Personnel (KMP), Qualified Institutional Buyers (QIBs), and Employees. According to SEBI, the mandate aims to minimise fraud, prevent loss of share certificates, and reduce legal disputes.

Qualified Institutional Placement

The framework for Qualified Institutional Placement (QIP) will be simplified, requiring companies to disclose only key risks and a brief company summary, eliminating repetitive information. Separately, new delisting rules will ease requirements for PSUs with over 90 per cent government ownership. These PSUs will be exempt from certain conditions, including the mandatory 60-day price average norm. Additionally, PSUs with low trading volumes will benefit from a simplified delisting process. These reforms aim to streamline regulatory compliance, promote efficiency in capital-raising through QIP, and facilitate smoother delisting for eligible PSUs, aligning with broader efforts to enhance market operations.

Revised Delisting Regulations

SEBI has revised its delisting regulations, removing the mandatory requirement of obtaining two-thirds shareholder approval for the delisting of PSUs. Under the updated norms, delisting will be carried out through a fixed-price offer, which must be at least 15 per cent higher than the floor price. The floor price will be determined based on the highest value among the three specified valuation methods. For shareholders who opt not to tender their shares, the sale proceeds will be retained in an escrow account managed by the stock exchange for a period of up to seven years. Any unclaimed amounts after this duration will be transferred to the Investor Education and Protection Fund (IEPF). It is important to note that these revised norms are not applicable to government-owned banks, non-banking financial companies (NBFCs), and insurance firms.

Merchant Bankers

Merchant bankers will now be classified into two categories. Category 1 firms, which are eligible for exemptions related to IPOs and takeovers, must maintain a minimum net worth of ₹50 crore. Category 2 firms, limited to offering advisory and documentation services, are required to have a net worth of ₹10 crore. Underwriting exposure will be restricted to a maximum of 20 times the firm’s net worth. Additionally, compliance officers must possess at least five years of relevant experience. To prevent conflicts of interest, individuals holding over 0.1 per cent equity in a merchant banker will be barred from participating in decision-making processes. SEBI has stated that these revisions aim to enhance transparency and ensure greater accountability in the sector.

Real Estate Investment Trusts

Sponsors and investment managers of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) will no longer be treated as ‘public’ investors for unit holding calculations, even if they qualify as QIBs. Holding companies (HoldCos) are now permitted to offset losses against cash flows received from their Special Purpose Vehicles (SPVs), moving away from the earlier requirement of a complete (100%) pass-through. Additionally, reporting timelines will now be synchronised with the disclosure of financial results. For private InvITs, the minimum threshold for primary market investments has been significantly reduced from the previous range of ₹1 crore–₹25 crore to ₹25 lakh.

Custodians To Offer Additional Financial Services

SEBI has allowed custodians to offer additional financial services—such as insurance and portfolio management services (PMS)—without the need to establish separate legal entities. This move aims to enhance operational efficiency and reduce costs, as long as potential conflicts of interest are effectively managed. The Custodian Development and Supervisory Framework (CDSSF) will collaborate with SEBI to determine which of these services will fall under regulatory oversight. In a related development, SEBI has introduced co-investment vehicles (CIVs) for Alternate Investment Funds (AIFs). Category I and II AIFs are now permitted to set up CIVs to facilitate direct investments in unlisted companies alongside the primary fund. Designed to overcome certain limitations associated with PMS structures, CIVs will be subject to a more relaxed regulatory regime. Notably, a separate CIV scheme must be created for each investee company.

Angel Funds

Angel funds will now be permitted to raise capital exclusively from accredited investors, with revised eligibility thresholds. These accredited investors will also receive Qualified Institutional Buyer (QIB) status, broadening their investment avenues. The minimum investment range has been expanded significantly, from the previous ₹25 lakh to a flexible range of ₹10 lakh to ₹25 crore. Key proposed reforms include the removal of the 25% investment cap, an increase in the permissible number of investors beyond 200, and the allowance of follow-on investments in non-startup companies. Fund managers will be required to invest a minimum of 0.5% of the fund amount in each deal. Additionally, existing non-accredited investors will be granted a one-year grandfathering period.

FPIs Investing Exclusively in Government Securities

FPIs investing exclusively in government securities will now adhere to Know Your Customer (KYC) norms prescribed by the Reserve Bank of India (RBI), streamlining the process and removing the need for repeated KYC submissions. These investors are exempt from disclosing detailed investor group information and may include Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and resident Indians. The onboarding process for such FPIs will be completed at the time of account opening, with the SEBI responsible for ensuring compliance.

Portfolio Managers

Portfolio managers will adopt a revamped disclosure format comprising dynamic and static sections to enhance transparency and improve investor understanding. A dedicated group has been established to review and unbundle charges levied by clearing corporations, thereby promoting greater cost transparency. SEBI reported that 93% of retail investors incurred losses in futures and options (F&O) trading over the past three years and signalled its willingness to implement additional safeguards if required. New settlement schemes have been introduced for brokers involved in National Spot Exchange Limited (NSEL) violations and for venture capital funds that delayed transitioning to the AIF framework.

These schemes are designed to facilitate faster resolution while safeguarding investor interests. Listed entities are now required to issue all securities solely in demat form, effectively phasing out physical share certificates and simplifying compliance. Investment advisers and research analysts can now offer liquid funds as eligible deposits, replacing fixed deposits and providing a lower-risk alternative for regulatory compliance.

To conclude, SEBI is undertaking a fundamental overhaul of the market’s framework. These reforms reflect its proactive and forward-looking regulatory approach, aimed at simplifying compliance, broadening market participation, and aligning regulations with the evolving needs of a dynamic economy. By eliminating bureaucratic hurdles and modernising processes—from delistings and disclosures to social investing and startup fundraising—SEBI is paving the way for a more agile market ecosystem. However, this transformation also places greater responsibility on market participants. The true test lies in execution.

If successful, these reforms could unlock more efficient capital flows and significantly deepen investor engagement across sectors. Yet, it is equally vital that they guard against the resurgence of past challenges in new forms. Until then, the market remains at a pivotal crossroads, poised between promise and prudence.