Market Makeover in Motion: SEBI Charts Bold Reforms for Derivatives, Cash Markets, and Pre-IPO Transparency

India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), is preparing a sweeping set of reforms aimed at strengthening market integrity, improving investor protection, and enhancing transparency across trading segments. SEBI Chairperson Tuhin Kanta Pandey outlined three key initiatives on August 21, 2025: extending the tenure and maturity of equity derivatives contracts, deepening cash market volumes, and creating a regulated platform for pre-IPO company disclosures.

 

These reforms come amid rising retail participation, global scrutiny of speculative trading, and growing demand for structured access to unlisted securities.

 

1. Equity Derivatives: Tenure Extension and Maturity Reform

 

SEBI is exploring ways to increase the tenure and maturity of equity derivatives contracts to reduce speculative churn and align with global standards

 

The regulator has already limited the number of contract expiries and increased lot sizes to curb excessive retail exposure and high-frequency trading volatility

 

Effective August 28, 2025, the expiry day for all index and stock derivatives will shift from Thursday to Tuesday, including NIFTY, BANKNIFTY, FINNIFTY, MIDCPNIFTY, and single-stock contracts

 

SEBI’s Secondary Market Advisory Committee is reviewing intraday position limits and exposure caps to prevent manipulation and protect retail investors3

 

2. Cash Market Deepening: Boosting Liquidity and Participation

 

SEBI aims to enhance cash market volumes by incentivizing long-term participation and reducing reliance on derivatives

 

Measures under consideration include lowering Securities Transaction Tax (STT), easing margin requirements, and expanding product diversity

 

India’s cash market turnover rose 38.3 percent year-on-year to ₹300 lakh crore in FY25, but growth has slowed compared to previous years

 

SEBI is working with exchanges to improve order execution, reduce latency, and attract institutional flows into the cash segment

 

3. Pre-IPO Platform: Regulating the Grey Market and Enhancing Transparency

 

SEBI will collaborate with the Ministry of Corporate Affairs (MCA) and stock exchanges to build a regulated platform for information on pre-IPO companies

 

The initiative aims to curb grey market activity and speculative pricing in unlisted shares, which often mislead retail investors8

 

The proposed platform will allow structured trading of shares during the three-day window between IPO allotment and listing, replacing informal curb trading

 

Investors will gain access to verified disclosures, buy/sell quantities, and indicative pricing, improving decision-making and reducing risk

 

Strategic Implications and Industry Response

Market participants have welcomed the reforms as timely and necessary, especially in light of recent volatility and regulatory action against manipulative trading strategies

Forward Outlook

Sources: The Hindu Business Line, Reuters, Outlook Business, CNBC-TV18, Financial Express, Business Standard.