SEBI Says No Immediate Changes to Market Structure as Investor Participation Expected to Rise

Introduction

India’s securities market has undergone a major transformation over the past three decades, with improvements in clearing and settlement infrastructure playing an important role in making the market more efficient. As participation in the market continues to expand, regulators and market institutions are increasingly focused on ensuring that the underlying systems remain reliable, resilient and capable of handling new risks.

Against this backdrop, Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey has indicated that the regulator is not planning immediate changes to the existing market structure. Instead, SEBI expects market participation to increase as brokers introduce newer facilities through their applications and investors become more comfortable using them.

The comments came during an event marking 30 years of NSE Clearing and highlighted a broader theme for India’s financial markets: growth in participation must be accompanied by stronger risk management and resilient market infrastructure.

SEBI Sees More Investors Entering the Market

One of the key messages from SEBI is that investor participation is expected to continue rising.

Technology has made access to financial markets considerably easier for investors. Brokers can introduce additional facilities through their digital platforms, allowing market participants to become more familiar with different aspects of investing and trading.

According to Pandey, SEBI does not currently see a need for an immediate change to the existing system. The expectation is that participation will grow naturally as investors learn more about the market and brokers make additional facilities available through their applications.

This approach suggests that the regulator is currently prioritising the effective functioning and evolution of existing infrastructure rather than introducing major structural changes simply because participation is increasing.

For investors, stability can be important. Market participants generally benefit when rules and systems are predictable, provided the infrastructure continues to handle growing activity safely and efficiently.

Why Clearing and Settlement Infrastructure Matters

Clearing and settlement may not attract as much attention from everyday investors as stock prices, indices or corporate earnings, but it is a critical part of the securities market.

When a transaction takes place, the financial system must ensure that the obligations created by that transaction are properly completed. This makes clearing and settlement infrastructure an important foundation for confidence in the market.

Pandey highlighted the evolution of India’s clearing and settlement infrastructure over the past 30 years. He also pointed to improvements in interoperability between clearing corporations.

Greater Interoperability Can Improve Efficiency

Interoperability allows market participants to consolidate clearing and settlement functions across exchanges. According to SEBI, this has helped improve capital efficiency and reduce operational complexity.

This matters because financial markets involve multiple institutions, exchanges and service providers. Greater coordination between these parts of the system can help reduce unnecessary complexity.

As participation grows, efficiency becomes even more important. A system that works effectively at one level of activity must also be capable of supporting higher volumes without creating unnecessary operational burdens.

SEBI Is Still Reviewing Specific Market Processes

Although SEBI is not planning immediate changes to the overall market structure, that does not mean the regulator has stopped reviewing existing processes.

The regulator is working on proposals concerning settlement, margin and risk-management provisions for clearing corporations. It is also examining ways to simplify certain periodic processes.

Another area under examination is the handling of settlement-related operations when an unscheduled holiday affects normal market processes.

SEBI is also looking at margin requirements for subsequent buy or sell transactions after early pay-in of securities has been accepted in the cash market.

These areas may appear technical to ordinary investors, but they can have practical implications for how efficiently market transactions are processed.

Simplification Without Disrupting the System

The broader direction appears to be one of refinement rather than wholesale restructuring.

Instead of changing the entire market framework, SEBI is considering adjustments to individual processes that could make settlement and risk management more efficient.

That distinction is important. Financial-market infrastructure needs to evolve as market practices change, but large structural changes can also introduce new operational challenges. A measured approach can allow regulators and market institutions to improve individual areas while preserving overall stability.

The Next Challenge: Managing System-Wide Risks

Perhaps the most significant part of Pandey’s comments concerns the changing nature of financial-market risks.

Traditional risk management often focuses on individual institutions and specific categories of financial risk. However, modern markets are closely interconnected. A problem at one institution or service provider can potentially affect others through shared exposures, technology dependencies or liquidity pressures.

Pandey pointed to several risks that regulators increasingly need to consider, including technology failures, liquidity shocks, common exposures and failures involving technology service providers.

This represents a broader way of thinking about financial stability.

Why Technology Risk Is Becoming More Important

Technology is now deeply connected with the operation of financial markets. Digital platforms, automated systems and technology service providers support many parts of the market ecosystem.

As dependence on technology increases, resilience becomes just as important as speed and convenience.

A technology failure does not necessarily remain isolated to one organisation. Where institutions share systems, providers or exposures, disruptions can potentially spread across multiple parts of the financial network.

That is why SEBI is emphasising the importance of understanding relationships between institutions rather than examining each organisation completely on its own.

Artificial Intelligence Adds a New Layer of Risk

Artificial intelligence is another major area receiving attention from the regulator.

AI is increasingly being used in areas such as market surveillance, risk analytics and decision-making. These applications can potentially improve how financial markets operate, but they also introduce new risks.

SEBI has highlighted concerns involving opaque models, data, governance and operations.

The challenge is therefore not simply deciding whether AI should be used. Regulators and market institutions also need to understand how AI-based systems behave, what information they rely on and how their decisions can be governed.

As AI becomes more prominent, risk-management frameworks may need to consider both traditional financial risks and technology-related risks.

From Measuring Risk to Anticipating Risk

A central idea in SEBI’s approach is that risk management needs to become more forward-looking.

Instead of focusing only on measuring risks that are already visible, regulators need to anticipate how risks could develop and spread.

This is particularly relevant in an interconnected financial system. A problem that appears small at one institution could become more significant if it interacts with another institution, a technology provider or a liquidity event.

The focus therefore needs to move from individual entities toward networks and the financial system as a whole. SEBI also highlighted the importance of considering financial resilience and operational resilience together.

For investors, this means that market stability depends on much more than the performance of individual companies.

What SEBI's Position Means for Investors

For ordinary investors, the immediate message is relatively straightforward: there is no indication of an imminent overhaul of the existing market structure.

At the same time, SEBI's comments show that the regulatory framework is continuing to evolve in specific areas.

Investors should therefore expect technology, risk management and operational resilience to remain important themes in India's financial markets.

The expected increase in participation could also make these issues more significant. As more people use digital brokerage platforms and become familiar with market products and facilities, the infrastructure supporting those activities will need to remain dependable.

Greater participation can broaden the market, but growth must be supported by systems capable of managing disruptions and unexpected events.

What Could Happen Next?

The next phase of development is likely to involve incremental improvements rather than an immediate restructuring of the market.

SEBI's ongoing work on settlement, margins and risk-management provisions indicates that specific processes may continue to be reviewed.

At the same time, the regulator's emphasis on technology and system-wide risks suggests that future policy discussions could increasingly focus on resilience.

The combination of higher investor participation, expanding digital facilities and greater use of AI creates both opportunities and challenges.

The opportunity is a market that can become more accessible and efficient. The challenge is ensuring that greater speed and connectivity do not create vulnerabilities that are difficult to detect until a disruption occurs.

FAQs

Is SEBI planning an immediate change to the existing market structure?

No. SEBI Chairman Tuhin Kanta Pandey said the regulator is not looking at immediate changes to the existing market structure.

Why does SEBI expect market participation to increase?

SEBI expects brokers to introduce newer facilities through their applications while investors become more familiar with the market and its available services.

What areas is SEBI currently reviewing?

SEBI is working on proposals involving settlement, margin and risk-management provisions for clearing corporations. It is also examining certain settlement procedures and margin requirements related to early pay-in transactions.

Why is AI important for financial-market regulation?

AI can support surveillance, risk analytics and decision-making, but it can also create concerns involving model transparency, data, governance and operations.

What does system-wide risk management mean?

It means looking beyond individual institutions and examining how risks can move through relationships between institutions, technology providers and other connected parts of the financial system.

Conclusion

SEBI's latest comments provide a picture of an Indian securities market that is expanding without requiring an immediate overhaul of its basic structure. The regulator expects participation to grow as brokers make newer facilities available and investors become increasingly comfortable with the market.

At the same time, the focus is shifting toward what happens beneath the surface. Clearing and settlement infrastructure, interoperability, technology resilience, liquidity risks and AI-related challenges are becoming increasingly important.

SEBI's approach indicates that future market regulation will not be limited to measuring the risks faced by individual institutions. It will increasingly involve understanding how different parts of the financial ecosystem interact and how the system can remain resilient when unexpected problems arise.

For investors, that is an important development. A healthy securities market is not defined only by rising participation or efficient trading. It also depends on the infrastructure and safeguards that allow transactions to continue functioning when conditions become difficult.

As India's financial markets continue to grow, the ability to anticipate and manage these interconnected risks could become just as important as the ability to encourage wider participation.