India’s market regulator to roll out major reforms to attract foreign investors
India’s market regulator, the Securities and Exchange Board of India (SEBI), is preparing a sweeping set of reforms to attract foreign investors and boost liquidity in the cash equities market, its chairman Tuhin Kanta Pandey said on Wednesday.
Among the planned changes are faster registration processes for overseas investors, reduced trading costs, and a more flexible framework for short-selling. Pandey, who assumed charge in March, said SEBI’s aim is to make India’s markets more efficient and globally competitive, News.Az reports, citing Reuters.
“In my interactions with foreign participants, both in India and abroad, I got the feeling that the number one issue is that our registration process still takes too long. It is unacceptable,” Pandey said in an interview. “Our objective is to make it into a few days, not even a month.”
The announcement comes amid significant foreign capital outflows, with overseas investors pulling nearly $17 billion from Indian equities this year. Analysts say the reforms are aimed at restoring confidence as India faces external economic pressures, including higher U.S. tariffs on Indian exports.
SEBI is also conducting a broad review of trading regulations, including margin requirements for cash trading, in an effort to deepen liquidity in equity markets.
“While liquidity in cash markets has improved in the last few years, we want it to improve further,” Pandey noted, adding that certain margin adjustments could be considered.
India’s market structure has become heavily skewed toward derivatives, which now exceed the size of the cash market by more than 300 times. The regulator has been seeking to curb excessive speculation, especially from retail investors participating in futures and options trading.
Pandey said SEBI may explore introducing “product suitability” rules to ensure smaller investors are not exposed to high-risk derivatives without sufficient understanding of the market.
In a move to strengthen transparency and efficiency, SEBI is reviewing rules governing short-selling and securities lending and borrowing mechanisms. These markets remain shallow, and Pandey acknowledged that high transaction costs have limited participation.
“We have to look at costs. If the transaction cost is too high, the activity will not take place,” he said.
The regulator is also studying the potential introduction of “netting” — allowing investors to offset buy and sell positions — a mechanism that could reduce capital requirements for traders, especially foreign funds.
Currently, India’s central bank does not allow such netting. However, Pandey indicated SEBI may explore limited implementation: “Perhaps netting in the same scrip may not be possible, but in different scrips it is possible. That would be a big facilitative step.”
Responding to concerns from global investors, SEBI has decided to defer its planned shift from the current T+1 (next-day) settlement system to T+0 (same-day) settlements. The regulator said it will first evaluate the impact of recent regulatory changes before moving ahead with further adjustments.
Pandey emphasized that while SEBI is determined to improve efficiency, the regulator will maintain a “stable and consistent approach” to ensure that reforms are sustainable.
The latest proposals mark SEBI’s most aggressive push in years to make India’s financial markets more attractive to global investors, streamline regulations, and balance innovation with investor protection.
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