| Relevance: General Studies Paper III — Indian Economy: Capital Markets and Mobilisation of Resources; with linkages to General Studies Paper II — Statutory and Regulatory Bodies (SEBI) |
Source: SEBI Chairman’s address, June 2026 |
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India’s stock-market regulator, the Securities and Exchange Board of India (SEBI) — now led by Chairman Tuhin Kanta Pandey — has begun a wide review of its rulebook. In June 2026, he set out a roadmap with three aims: cleaner corporate governance, deeper and more liquid markets, and greater investor confidence.
The push comes at a tricky time — foreign investors recently pulled out around $17 billion from Indian shares — so SEBI wants to make India easier to invest in, while still protecting small retail investors. The guiding idea: cut needless friction, but keep the guardrails strong. |
1 · The watchdogs in the boardroom
| Corporate governance means running a company fairly and honestly, in the interest of all its owners — not just the powerful promoters. It guards against the “agency problem”: the risk that those who run a company act for themselves rather than for ordinary shareholders. Independent Directors (IDs) — board members with no stake in or links to the promoters — are meant to be the neutral watchdogs. |
- A bigger job for IDs: SEBI says an Independent Director can no longer simply tick boxes or ask the odd tough question. They must now actively oversee modern risks — how a company uses Artificial Intelligence (AI), its cybersecurity, its Environmental, Social and Governance (ESG) record, and its research strategy.
- Training to match: To help IDs handle these new duties, SEBI is building a network for their continuous training and skilling.
2 · How India’s board rules grew up
| 1 |
Kumar Mangalam Birla Committee (1999). Created Clause 49 of the Listing Agreement — the first set of board rules, and the idea of Independent Directors. |
| 2 |
Narayana Murthy Committee (2003). Strengthened audit committees and the honesty and verification of financial disclosures. |
| 3 |
Uday Kotak Committee (2017). Urged splitting the Chairman and CEO roles, raising board independence (towards 50%), and fuller disclosure of related-party deals. |
| 4 |
SEBI’s review (2026). Now updating the main rulebook — the LODR Regulations, 2015 — so Independent Directors also oversee AI, cybersecurity and ESG. |
3 · Fair entry, fair exit
- The principle: A healthy market must let companies both list (enter) and leave (exit) fairly. SEBI is reviewing both the LODR rules (listing) and the delisting rules (exit).
- What delisting is: Delisting means permanently removing a company’s shares from the stock exchange. India mainly uses Reverse Book Building (RBB), where public shareholders themselves bid to “discover” the exit price.
- The problem and the fix: RBB can be gamed by groups of traders who push the price up unfairly. So SEBI is exploring a fixed-price option to make exits cleaner and less open to manipulation.
4 · Welcoming global capital, safely
- Easier, risk-based KYC: To bring in more foreign money, SEBI is simplifying Know Your Customer (KYC) checks. Instead of one rigid process for everyone, a risk-based system eases paperwork for low-risk investors (like sovereign wealth funds and central banks) while watching high-risk accounts closely. SEBI also wants to cut foreign-investor registration from months to just days.
- Safe, not loose: This matches the global standards of the Financial Action Task Force (FATF). The Prevention of Money Laundering Act (PMLA), 2002 stays the backbone of KYC, so easier entry does not open the door to illicit money or “round-tripping” (sending Indian money abroad and back to disguise its source).
5 · Deeper, future-ready markets
- More liquidity: SEBI is reviewing the short-selling and Securities Lending and Borrowing (SLB) rules, which link the cash and derivatives markets and make trading smoother.
- New hedging tools: Working with the Reserve Bank of India (RBI), SEBI plans derivatives on bond indices, letting big investors protect themselves against swings in interest rates.
- Funding the future: SEBI is upgrading its Innovators Growth Platform (IGP) so strategic high-tech sectors — semiconductors, AI, clean energy, biotech and defence-tech — can raise long-term money from public markets.
- Rules for AI, fairness for farmers: SEBI plans ethical guidelines for the use of AI in trading, and is moving agri-commodity derivatives towards physical settlement, which ties prices to real produce and helps protect farmers.
6 · Way forward
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Balance openness with protection. Easier entry for foreign capital must go hand in hand with strong protection for small retail investors against sudden market volatility. |
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Skill the watchdogs. Equip Independent Directors with real training in AI, cybersecurity and ESG, so board oversight is genuine — not just a formality on paper. |
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Keep exits clean. Finalise a delisting method that gives a fair price to small shareholders while blocking price manipulation. |
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Guard the gates while opening them. Simpler KYC must stay firmly within PMLA and FATF safeguards, so that speed never becomes a loophole for dirty money. |
| As more Indians put their savings into shares and funds, the rules that govern the market matter to ordinary families, not just to big players. SEBI’s reforms try to walk a fine line — welcoming global capital and new technology while protecting small investors and honest governance. If the balance is right, India’s capital market can become both deeper and safer: open enough to attract the world’s money, and strong enough to keep it honest. |
| UPSC Value Box |
| SEBI Act, 1992 |
The law that created SEBI and gives it power to protect investors, curb insider trading, and regulate the market. |
| LODR Regulations, 2015 |
Listing Obligations and Disclosure Requirements — the main rulebook for how listed companies must behave and disclose information. |
| Independent Director (ID) |
A board member with no ties to the promoters, for neutral oversight. Section 149, Companies Act 2013 requires at least one-third of a listed firm’s directors to be IDs. |
| Governance Committees |
Birla (1999 — Clause 49 & IDs), Narayana Murthy (2003 — audit/disclosures), Uday Kotak (2017 — split Chairman-CEO, more board independence). |
| Reverse Book Building (RBB) |
The price-discovery method for delisting, where public shareholders bid to set the exit price. |
| Risk-Based KYC & FATF |
Lighter checks for low-risk investors and stricter for high-risk ones, in line with the global anti-money-laundering standards of the Financial Action Task Force. |
| Innovators Growth Platform (IGP) |
A SEBI platform helping high-tech firms (semiconductors, AI, clean energy, biotech, defence-tech) raise public capital. |
| Securities Lending & Borrowing (SLB) |
A system allowing shares to be lent and borrowed (e.g., for short-selling), linking the cash and derivatives markets and boosting liquidity. |
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| An efficient capital market must balance openness to global capital with the protection of retail investors and sound corporate governance. In this light, discuss SEBI’s recent regulatory reforms. (15 marks · 250 words) |
Structure hint:
Introduction — SEBI as the market regulator (SEBI Act, 1992) and the three aims of its 2026 review — governance, deeper markets, investor confidence.
Body Part 1 — governance: the expanded role of Independent Directors (AI, cyber, ESG), the LODR review, and the committee lineage (Birla, Narayana Murthy, Kotak).
Body Part 2 — markets and capital: fair entry/exit (delisting, RBB), risk-based KYC (FATF/PMLA), liquidity reforms (SLB, bond derivatives), and the IGP for deep-tech.
Body Part 3 — the balance: easing foreign entry versus protecting retail investors; speed versus safeguards.
Way Forward — skilled IDs, clean delisting, and openness kept within strong anti-money-laundering guardrails.
Must mention:
SEBI Act 1992 ·
LODR Regulations ·
Independent Directors (Sec 149) ·
Reverse Book Building ·
FATF / risk-based KYC
Conclusion hint: Stress that the reforms must make India’s market both deeper and safer — open to global capital and technology, yet firmly protective of small investors and honest governance.
