Examine SEBI's consultative rule-making process, citing recent market-infrastructure reforms.

The SEBI Act, 1992 gives SEBI the power to regulate securities markets. SEBI usually makes rules in three steps: it publishes a consultation paper, takes public comments, and then issues a circular that takes effect later. Its recent settlement and margin reforms show the strengths of this method, and also some gaps in transparency and inclusiveness.

The process

Problem identified → Consultation paper → Public comments → Board decision/Circular → Lead time → Rollout

Fig: SEBI's consultative rule-making cycle

Recent reforms that show it

• Early Pay-In (EPI): an Aug 2026 consultation paper set out an EPI process flow for T+1 settlement [2]. In Oct 2026 SEBI changed the rules so that the value of shares delivered early counts towards margin. The change takes effect on 22 Feb 2027, giving four months for system upgrades [1].
• Targeted relief: the relief is capped at the lower of the value of shares delivered early and the value of shares sold [1]. This builds on existing rules that release margin on early pay-in [3].
• Phased settlement reform: optional T+0 settlement was introduced first. For the later instant-settlement phase, SEBI proposed allowing only limit orders [4].
• Blocking instead of transfer: a 2023 paper proposed that EPI shares be blocked in favour of the broker's pledgee account, not transferred to the broker [5].
• Extension to commodities: a May 2026 paper proposed giving commodity options the same EPI benefit [6].

Strengths

• Evidence and feedback from the market make the rules more legitimate and easier to comply with.
• Lead time and phasing lower operational risk for clearing corporations, brokers and depositories.
• Risk-based targeting keeps safeguards in place while freeing capital that would otherwise sit idle.

Limitations

• Narrow participation: most comments come from brokers and institutions, and retail investors are barely heard.
• Opaque reasoning: SEBI rarely publishes why it accepted or rejected comments.
• No formal regulatory impact assessment, which the FSLRC recommended.
• Reforms depend on systems being ready, so deadlines can slip, and frequent circulars keep compliance requirements changing.

Way forward

• Publish a feedback-response statement and cost-benefit analysis with each final rule.
• Issue plain-language summaries for investors and use regulatory sandboxes to test infrastructure changes.

From EPI to T+0, SEBI's consultative model has made market infrastructure safer and cheaper to use. Making it more transparent and more inclusive, in line with the FSLRC's call for accountable regulators, would strengthen SEBI's statutory mandate: to protect investors while developing the securities market.