Sebi proposes key changes on IPF, tightening norms for exclusively listed companies

Sebi proposes key changes on IPF, tightening norms for exclusively listed companies, proposals include Ease of Doing Business for Exchanges.

The Securities and Exchange Board of India (Sebi) has proposed simplifications to key circulars governing stock exchanges. The key proposals include fixing a timeline for filing claims in case of broker defaults and tightening norms for promoters of exclusively listed companies. Sebi has also proposed the merger of the investor protection funds (IPF) of the equity and derivative segments of an exchange. The proposals mainly focus on Ease of Doing Business for Exchanges.

Sebi has proposed to introduce a three-year IPF claim lookback period, under which only transactions executed within three years prior to the date a member is declared a defaulter will be eligible for IPF claims — a move aimed at curbing stale and repetitive claims. The paper states that it is proposed to amend MSECC norms to consider only those claims as eligible where the underlying transactions were executed within three years prior to the declaration of default.

The merger of equity and commodity IPFs has also been proposed. Sebi said exchanges would maintain a single IPF covering both equity and commodity segments to harmonise contributions, utilisation, deployment, and governance, with safeguards to protect commodity-segment needs. The regulator noted that a single IPF would simplify requirements for exchanges. However, the merger would be subject to maintaining equivalent funds for predominantly commodity-derivative exchanges. Sebi has sought the views of the Secondary Market Advisory Committee on this proposal.

Removal of a specific restriction on NSE’s IPF interest usage has also been proposed. Sebi aims to bring parity across exchanges by removing the restriction that required NSE to use its entire IPF interest solely for investor claims — a condition imposed in 2020. The paper notes, “Based on representation received from NSE, towards ensuring parity in the permissible usage of Investor Protection Fund across exchanges, it is recommended to discontinue this restriction imposed on NSE.”

Another key proposal concerns exclusively listed companies (ELCs) on the Dissemination Board (DB). Such companies must submit a plan of action to the designated exchange within three months of moving to the DB. Sebi noted that existing norms are silent on timelines for submission, giving undue leeway to ELCs and creating uncertainty for shareholders. Hence, a three-month submission timeline is being suggested. Designated exchanges must also ensure completion of an ELC’s action plan within six months of receipt. Tightening of promoter liability for ELCs has also been proposed. Promoters and directors will be held liable if they fail to provide exit options within prescribed timelines, replacing the earlier vague standard of “demonstrating adequacy of efforts.”

Sebi has also hinted at an upward revision of the market turnover threshold for exchanges. The Rs 1,000 crore minimum annual trading turnover threshold for exchange viability will remain but be restated as “Rs 1,000 crore or such higher amount as Sebi may decide,” allowing future upward adjustments. This threshold was last fixed in 2012 and hence keeping the market size, Sebi has tweaked the wordings.

The paper also proposes relaxing the rule requiring public interest directors (PIDs) to attend all meetings. They would now be required to “endeavour” to attend committee meetings, with mandatory attendance in at least two meetings a year, allowing flexibility for genuine exigencies. Sebi noted that making it mandatory in all cases may not be realistic.

PIDs would also no longer need to prepare detailed reports on committee workings. Instead, they must update each other during PID meetings and submit meeting outcomes to the exchange board within 30 days, with reports to Sebi required only when issues involve conflicts or significant market impact. The paper also proposes moving the PID performance review window so that external evaluations cover the term up to at least six months before expiry, instead of four months, to avoid overlap with extension applications.

Sebi has proposed that the Conflict Resolution Committee (CRC) should be ad hoc. Instead of a standing Sebi-constituted CRC, one may be formed as needed to handle conflicts between listing and listed exchanges. Sebi noted that no such conflict has arisen to date, making an ad hoc structure more practical.

The regulator has also proposed delegating more powers to exchanges’ internal committees. Where member-committee discretion is not involved, exchanges may delegate the imposition of standardised penalties to an internal committee or department head, with quarterly reporting to the member committee. This aims to simplify the implementation of regulatory actions.

Another proposal suggests that exceptional quarterly reports on shareholders deemed not “fit and proper” be routed to the exchange’s Regulatory Oversight Committee (ROC) instead of Sebi. The regulator said this would reduce compliance costs, as the same information is already reviewed during inspections and offsite supervision.

Sebi has also proposed removing the governance-based contribution provision, which currently allows Sebi to decide the share of de-recognised exchanges’ assets to be contributed to investor protection based on governance and estimated liabilities — calling it a duplication.  Sebi has invited public comments on the proposals by October 29, 2025.