Sebi weighs lighter rules for smaller brokers, says Tuhin Kanta Pandey

Smaller stockbrokers could face lighter compliance burdens than the largest firms under a system the market regulator is considering, Securities and Exchange Board of India chairman Tuhin Kanta Pandey said on Saturday.

“For stockbrokers, we are exploring graded compliance,” Pandey told the 16th ANMI International Capital Market Convention, a gathering of stockbrokers and market intermediaries in Mumbai. “It would reflect your scale, your client exposure, and your reliance on technology.”

The idea would replace one set of obligations for every broker with rules tied to how big a firm is and how much risk it carries. Pandey did not give a timeline, and no consultation paper has been issued yet.

Bonds, tokens and short selling

Much of the speech was about making markets deeper. Sebi is working on a market-making framework “to lift secondary trading in corporate bonds”, Pandey said, a long-standing gap in a market where most bonds are bought by institutions and held to maturity.

He also set out the next step for Demat 2.0, the regulator’s digital securities project. “In the next phase of Demat 2.0, tokenised corporate bonds will trade in the secondary market,” he said, promising “better liquidity, lower settlement risk, and faster access to funds.”

The regulator is reviewing short selling and the securities lending and borrowing mechanism “to improve liquidity and price discovery”, and reworking the rules for depository participants “for simpler compliance and stronger defences against fraud,” he said.

AI sandbox and a warning on cyber risk

On technology, Pandey said Sebi was looking at a testing ground for artificial intelligence tools. “We are exploring an AI sandbox where new tools can be tested safely,” he said. “While innovators gain regulatory certainty, we gain the right safeguards.”

He was blunter about cyber security, telling brokers to stop treating it as a back-office cost. “So please treat cybersecurity as a business priority, not an IT expense,” he said. “Test your systems. Plan for failure.”

Pandey summed up the regulator’s agenda in four parts. “Our roadmap has four parts: simpler rules, deeper markets, responsible technology, and wider access,” he said.

Why it matters now

The speech came at the end of a rough week for small investors. Smallcap and midcap shares slid nearly 4% on Friday as margin calls forced leveraged traders to sell, and earlier this month Sebi proposed fines and promoter account freezes to police the use of IPO money, along with a market value test for small-company listings. Graded compliance, if it goes ahead, would change how much the regulator asks of each of the firms that handle those investors’ trades.