The Securities and Exchange Board of India (SEBI) has issued a draft proposal aimed at reforming the governance of exchanges, signaling a shift toward simpler compliance. However, the proposal has raised concerns about the potential degradation of traditional market oversight, particularly due to relaxed board reporting requirements and the merging of regulations for stock and commodity exchanges.
SEBI plans to integrate multiple existing master circulars that govern stock and commodity exchanges into a unified framework, while establishing a distinct rulebook for clearing corporations. The agency’s objective is to eliminate redundancies and synchronize regulation with the contemporary market structure. Experts note that while this approach is logical in principle, its implementation could be challenging.
Kunal Sharma, Managing Partner at Taraksh Lawyers & Consultants, commented, “The rationale is straightforward — commodity derivatives now operate as segments within stock exchanges, so having two sets of circulars is redundant. But the devil is in the details. If segment-specific risk management nuances around margin requirements or delivery are lost in a one-size-fits-all approach, we’ll have traded administrative simplicity for operational ambiguity.”
In terms of execution risks, Rohit Jain, Managing Partner at Singhania & Co, expressed that the consolidation could reduce duplication and streamline reference materials. However, he cautioned that the unique requirements of stock and commodity exchanges might become muddled, creating interpretational challenges.
Further complicating the transition is the existence of several circulars issued over the past year that are still pending incorporation into the new framework. Jain emphasized the necessity for SEBI to provide a comprehensive mapping of old and new clauses, along with a transition period to ensure clarity.
The proposal’s intention to separate provisions for exchanges and clearing corporations could enhance the latter’s autonomy; however, experts warn that this may lead to coordination gaps between trade execution and settlement functions, which are inherently linked. To mitigate this risk, experts recommend the establishment of clear escalation protocols, joint stress testing, and incident-response strategies.
Alay Razvi, Managing Partner at Accord Juris, highlighted that unified Inter-Professional Funds should effectively contain segment risks to protect commodity assets and claims. He advocated for flexible turnover thresholds and updated exit policies, grounded in transparent criteria and phased transitions.
In terms of outsourcing, SEBI is tightening regulations, clarifying that vendor-governance standards are now mandatory rather than advisory. Kunal Sharma stated, “This fundamentally changes the compliance landscape for exchanges,” explaining that exchanges will need to bolster their vendor management systems, engage in comprehensive due diligence, implement continuous monitoring, and ensure board-level oversight for outsourced services. Smaller exchanges might find these new requirements particularly burdensome.
Board-level oversight measures are also undergoing adjustments. Vasudha Goenka, Partner at Cyril Amarchand Mangaldas, noted that the consultation paper suggests changes regarding Person in Charge Designation (PID) requirements, aimed at balancing administrative needs with oversight. For instance, although PIDs are currently mandated to attend all meetings, the proposal allows for some flexibility to accommodate personal exigencies.
The draft proposal is under consideration as SEBI aims to modernize its regulatory framework while navigating the complexities of financial oversight.
Published on October 12, 2025.
