SEBI Chairman Tuhin Kanta Pandey confirmed that the Securities Lending and Borrowing Mechanism (SLBM) and short-selling frameworks are currently under review. Speaking at the 23rd Annual Capital Markets Conference organized by SEBI and FICCI, Pandey highlighted the regulator's commitment to deepening India’s cash market.
Pandey emphasized that India's capital markets have evolved beyond merely reflecting economic activity; they now serve as a crucial driver, connecting household savings with enterprise and global capital with domestic opportunities. The proposed reforms are part of a broader strategy to ensure the next phase of growth leverages technology, expands investment opportunities, and modernizes regulation.
Expanding Investment Avenues and Capital Flow
The SEBI Chairman outlined several other key initiatives aimed at widening investment frontiers and easing capital flow:
- Foreign Securities Investment: SEBI is consulting on a framework for Portfolio Managers to permit client funds to be invested in foreign securities.
- Mutual Fund-only PMS: A new framework is being considered to introduce Mutual Fund-only Portfolio Management Services for mass-affluent investors.
- Global Fund Management: Efforts are underway to create a supportive framework for global fund-management activities operating from India.
- Accredited Investor Framework: This framework is under review to simplify accreditation processes and expand the pool of sophisticated investors.
- FPI Participation: Proposals include simpler digital onboarding for Persons Resident Outside India and wider FPI participation in non-agricultural commodity derivatives, with appropriate safeguards.
- Depository Receipts: The issuance of Depository Receipts against units of REITs and publicly listed InvITs has been proposed to broaden access to foreign capital.
Deepening Debt Markets and Technology Integration
Beyond the SLBM and short-selling reviews, SEBI is also focusing on strengthening debt markets and integrating technology:
- Debt Market Proposals: Initiatives include greater ISIN flexibility, support for ESG debt, and an exploration into corporate bond tokenization. A proposed Credit Risk-o-Meter is also being developed to help retail investors better understand debt risk.
- REITs and InvITs: SEBI is examining greater flexibility for these instruments to invest in under-construction projects, within prudential limits.
- Technology and Oversight: The regulator plans to introduce an IT Resilience Index for Market Infrastructure Institutions (MIIs) to assess critical system resilience. Collaboration with MIIs to expand API-based connectivity and interoperability is also in progress.
- AI/ML Guidelines: Guidelines for the responsible use of Artificial Intelligence and Machine Learning in markets will be issued, featuring a tiered approach with clear accountability, governance controls, and requirements like 'Kill Switch' and 'Humans in the Loop' mechanisms.
Regulatory Modernization
Pandey also touched upon the ongoing overhaul of SEBI's regulatory framework:
- Settlement Regulations: A comprehensive review is underway to make the proposed framework more rational, less discretionary, simpler, and faster.
- LODR and Delisting: The Listing Obligations and Disclosure Requirements (LODR) and delisting frameworks are also under review.
- SME IPO Framework: This framework is being re-evaluated to ease capital raising for genuine SMEs while maintaining investor protection.
- Common Advertisement Code: A proposed code will establish common standards for fairness, disclosure, and accountability for regulated entities in the digital age.