Market microstructure reforms are as important as enforcement in preventing manipulation. Discuss with reference to recent SEBI measures.

Market microstructure means the rules that decide how orders meet, how prices form and how contracts settle. These rules decide how easy manipulation is in the first place. SEBI's recent record shows that changing them matters as much as punishing the people who break them.

Limits of enforcement alone

• Action comes after the harm: SEBI's interim order against Jane Street (July 2025) alleged that heavy cash and futures trading moved index levels on weekly expiry days to benefit very large options positions [1]. By the time SEBI acted, smaller traders had already lost money.
• Detection lag: cases like this need months of trade-by-trade analysis, and penalties rarely give retail investors their money back.

SEBI's microstructure reforms

• F&O rationalisation (2024): SEBI allowed one weekly expiry per exchange, raised contract sizes and added extra tail-risk margin on expiry day. Together these reduced speculative excess [2].
• Closing Auction Session (CAS): notified in January 2026 [3], CAS replaces the 30-minute VWAP close with a 3:15–3:35 pm call auction for stocks that have derivatives. The stated aim is to align India with major global markets [4]. One price set from pooled orders is harder to nudge than a thin, late trading window.
• Settlement review: SEBI's September 2026 consultation paper considers settling expiry-day derivatives on the old VWAP, or on a blend of VWAP and the auction price [5]. The concern is that sharp moves in the auction can push physically settled stock options into the money.

Why the two work together

• Design reduces opportunity; enforcement raises the cost. Neither is enough alone, because manipulators move to whatever window the rules leave open.
• Design helps surveillance: a single, visible auction window gathers orders in one place, so one-sided orders are easier to flag.
• Feedback loop: the expiry-day abuse alleged in the enforcement case [1] led directly to rule changes [2][4].

Conclusion

Market integrity needs two pillars: rules that make manipulation hard and penalties that make it costly. SEBI should finalise CAS-linked settlement carefully, treat index and single-stock derivatives separately, review the choice at fixed intervals and use data-driven surveillance. This would serve its statutory mandate under the SEBI Act, 1992: protecting investors and developing a fair, transparent market.