SEBI overhauls market rules, replaces 30-year-old broker regulations

SEBI approved major reforms to simplify market regulations, lower transaction costs, and enhance transparency. The board replaced the 1992 stock broker rules, overhauled the mutual fund expense ratio framework, and rationalised brokerage limits.

The Securities and Exchange Board of India (SEBI) on Wednesday approved a series of far-reaching regulatory reforms aimed at simplifying market regulations, lowering transaction costs and improving cost transparency, measures that are expected to boost investor participation across mutual funds, equity and debt markets.

New Framework for Stock Brokers

At its board meeting held in Mumbai, SEBI Chairman underlined the need for simplifying regulatory language and improving ease of understanding, particularly while reviewing stock broker regulations. In line with this approach, the Board approved the replacement of the nearly three-decade-old SEBI (Stock Brokers) Regulations, 1992 with a new, streamlined framework that focuses on clarity, removal of redundant provisions and ease of compliance.

Overhaul of Mutual Fund Expense Ratios

A major reform announced by the Board relates to mutual fund expenses. The market regulator approved a comprehensive overhaul of the Mutual Fund Expense Ratio framework, including a reduction in base expense ratio limits across categories. The revised framework excludes statutory and regulatory levies, such as the Securities Transaction Tax (STT), Goods and Services Tax (GST), stamp duty, SEBI fees, and exchange charges, from the base expense ratio. These levies will now be charged strictly on actuals, over and above permissible limits, significantly improving cost transparency for investors.

Brokerage Limits Rationalised

The Board also rationalised brokerage limits charged to mutual fund schemes. In the cash market segment, the effective brokerage cap has been reduced from the earlier level of 12 basis points (bps), which included statutory levies, to approximately 8.59 bps net of levies, and further brought down to lower exclusive caps. Similarly, in the derivatives segment, brokerage has been cut from an effective 5 bps to about 3.89 bps net of levies, with sharper exclusive limits now prescribed. These steps are expected to directly lower transaction costs for mutual fund investors and improve overall scheme efficiency

Boost for Corporate Bond Market

In another significant move aimed at deepening the corporate bond market, SEBI approved amendments allowing debt issuers to offer incentives in public issues to select categories of investors. Issuers of non-convertible securities will now be permitted to provide incentives such as additional interest or issue price discounts to categories including senior citizens, women, armed forces personnel, retail individual investors and other categories as may be specified.

The reforms are expected to enhance cost transparency, reduce frictional costs and encourage broader participation in mutual fund and debt markets. The measures also reinforce SEBI's broader objective of balancing investor protection with ease of doing business, while strengthening confidence in India's capital markets.

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