New Sebi chairman Tuhin Kanta Pandey, speaking at Moneycontrol’s Global Wealth Summit on Friday, sent out a hopeful message that he would avoid over-regulation, seek to ensure trust and transparency, consult all stakeholders, and seek voluntary compliance with regulations.
It was a refreshing dose of common sense and suggests that SEBI is finally looking to ease off the regulatory chokehold on India’s capital markets, a chokehold that led to F&O volumes crashing and dampened investor sentiment. If his words are anything to go by, we will see a shift from regulatory excesses to a more balanced, investor-friendly approach.
Regulatory framework tilted too far towards risk aversion
In recent months, the regulator went full throttle on risk reduction, increasing contract sizes, limiting weekly expiries, and hiking margins, effectively throwing a wrench into the workings of India’s bustling derivatives market.
For instance, following the reduction in the number of expiries, many traders are left with idle capital. As a result, their returns have significantly decreased, and trading volume on the exchange has dropped. Traders are already struggling to execute large orders. Meanwhile, mutual funds were bombarded with complex SOPs and mandatory three-tier alerts.
The overregulation spree extended even to discount brokerage models, forcing brokers to rethink their zero-commission structures. Sebi's onerous new guidelines on research analysts forced several equity research firms to publicly announce plans to shut down their shops due to heightened compliance and operational requirements.
An unsettled state
The market regulator has also been unnerving market participants by frequent changes, forcing firms to change their strategies abruptly. This instability undermines long-term planning. As a result, India risks being perceived as a "regulatory maze" compared to Asian peers like Singapore and Vietnam, which maintain more stable frameworks.
Foreign Portfolio Investors (FPIs) have no problem with reforms but are frustrated by constant changes that disrupt their cost-benefit analyses. It did seem like SEBI was hell-bent on proving that too much regulation can be just as damaging as too little.
Pandey signals a positive change
Pandey’s speech indicates that, from now on, the regulator is likely to be more sensitive to the views of market participants. His collaborative tone is a welcome change. In his speech, he talked about teamwork—not just within SEBI, but with market participants, investor bodies, and financial institutions. This signals a shift from a top-down regulatory approach to one that involves active stakeholder engagement. The idea of working together to shape the markets of the future, rather than arbitrarily enforcing new rules, is a refreshing one.
Pandey’s outlook is a very pragmatic one. His stance seems to be that regulation should be about what’s necessary, not about ticking boxes. He has hinted at reviewing outdated rules and focusing on voluntary compliance rather than drowning market participants in unnecessary paperwork. If implemented, this could ease the burden on businesses and investors, making Indian markets more attractive to domestic and foreign capital alike.
On the foreign investment front, Pandey’s words will be music to the ears of FPIs and AIFs. He’s open to dialogue, ready to rationalize regulations, and, most importantly, aware that a more welcoming environment for global investors will strengthen India’s capital markets. It sends a clear message that FPIs are valued participants in Indian markets.
What’s sauce for regulated is sauce for the regulator
Pandey also talked about transparency—not just for market participants, but for SEBI itself. We may now actually have a regulator that doesn’t just impose rules but also holds itself accountable. Pandey’s promise to reveal conflicts of interest within SEBI is a step in the right direction. After all, if market participants are expected to play fair, shouldn’t the umpire follow the same rules?
Another highlight from Pandey’s speech is his focus on investor awareness. With 400 million Aadhaar-linked PAN accounts, but only 135 million active investors, there’s clearly a long way to go in expanding market participation. SEBI’s efforts to boost financial literacy are of course welcome. After all, an informed investor is less likely to fall for get-rich-quick schemes or speculative excesses.
Sebi hasn’t embraced laissez-faire
But make no mistake—Pandey isn’t advocating a free-for-all. SEBI’s measures to curb reckless speculation will likely remain, but the emphasis now seems to be on balancing risk mitigation with market efficiency. This approach, if followed through, could help create a market environment that protects investors without suffocating trading activity.
Ultimately, Pandey’s speech paints the picture of a SEBI that is finally willing to listen, adapt, and evolve. Whether this translates into meaningful policy changes remains to be seen, but for now, his words have sparked optimism in a market that was beginning to feel suffocated by overregulation. If he can deliver on his promise of “optimum regulation,” India’s capital markets might just find their sweet spot between risk control and growth.
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