proposed ease-of-doing-business measures for stock and commodity exchanges is expected to significantly reduce day-to-day compliance for brokers, give exchanges greater operational autonomy, and up the competition.
However, tightening of margin trading norms could accelerate consolidation among smaller intermediaries, experts said.
The most immediate and tangible impact, market participants said, will come from SEBI’s proposal to shift bulk and block deal disclosures from the Unique Client Code (UCC) level to the PAN level, with exchanges directly disseminating the information.
“This eliminates the need for manual aggregation and reporting by brokers, automating a significant daily compliance task,” said Amit Tungare, Managing Partner at Asahi Legal.
“For exchanges, the removal of the requirement to submit end-of-day surveillance reports to SEBI on pre-open call auction alerts and allowing them to take direct action reduces daily regulatory filing friction,” Tungare said.
Rule consolidation
The broader consolidation of trading rules across equities, derivatives and commodities is expected to materially reduce compliance effort by cutting down repetitive compliance and man-hours spent on procedural reporting.
“The consolidation exercise is directionally sound and, over time, should reduce compliance friction by eliminating overlaps and interpretational inconsistencies,” said Madhura Samant, Managing Partner, Elarra Law Offices. “That said, the benefit is not instantaneous. There will be a necessary adjustment period during which intermediaries incur transition costs before the efficiencies of a unified framework are fully realised,” Samant said.
However, the proposed raising of the minimum net-worth requirement for brokers that offer margin trading facilities (MTF) to ₹5 crore from ₹3 crore can materially alters the economics for smaller brokers, experts said.
Kunal Sharma, Founder and Managing Partner, Taraksh Lawyers & Consultants, said margin funding is often a core competitive offering for mid-sized brokers.
“Raising the net-worth bar may force such brokers either to infuse capital, exit the MTF business, or enter arrangements with larger intermediaries, accelerating consolidation,” he said, adding that allowing exchanges to prescribe higher thresholds could create uneven outcomes across markets.
Exchange competition
Another major shift lies in SEBI’s proposal to fold market making into a principle-based Liquidity Enhancement Scheme (LES), giving exchanges greater discretion to design incentives.
“This represents a paradigm shift,” Sharma said. “By moving away from prescriptive rules, SEBI has handed exchanges considerable discretion to compete for liquidity, particularly in new or emerging segments.”
However, there are competitive implications here. Smaller exchanges, including those which are still unprofitable, are encouraged to invest up to 10 percent of their audited net worth, while the more established markets are encouraged to invest up to 25 percent of their net profits or free reserves into such plans.
“Enforcing such differing regulations will help to ensure that the field remains level, thereby spreading the liquidity away from the larger markets,” Sharma said.
Tungare said that higher incentive caps for new exchanges serves as a direct tool for exchanges to aggressively compete for volume in emerging products, potentially “sparking a new war for liquidity.”
Archana Balasubramanian, Partner at Agama Law Associates, said the thrust appears to be on bringing enforcement closer to home and empowering exchanges to impose penalties, though bulk and block deal disclosures have certainly been simplified.