SEBI Simplifies Trading Compliance: New Consultation Paper Streamlines Tech Norms for Exchanges Amid EODB Push

SEBI Simplifies Trading Compliance: New Consultation Paper Streamlines Tech Norms for Exchanges Amid EODB Push​

The Securities and Exchange Board of India (SEBI) has issued a comprehensive Consultation Paper concerning the modernization of technology standards for Market Infrastructure Institutions (MIIs). This move aims to significantly reduce compliance burden, streamline processes, and enhance the ease of doing business across stock exchanges and clearing corporations. The consultations propose sweeping rationalizations across various Master Circular provisions related to Trading Software and Technology.

The consultation paper is part of a larger series initiated in response to the Finance Minister's budget announcements for FY 2023-24, which mandated a consultative process toward simplifying regulatory requirements within the financial sector.

Modernizing Exchanges: Rationalization in Trading Tech​

The proposed changes involve modifying Chapter 2 (Trading Software and Technology) of the Master Circular for Stock Exchanges and Clearing Corporations (MSECC). The goal is to remove redundancies, discontinue duplication, and simplify compliance requirements for exchanges.

Several proposals target simplification across various operational aspects. For instance, existing provisions concerning Internet Based Trading (IBT) applications submitted by brokers are proposed to be merged with similar rules directed toward the exchange itself, aiming at a greater degree of rationalization (Para 1). Similarly, provisions relating to System Capacity and alternate arrangements for brokers following an internet link failure are set to be combined into a single streamlined provision.

Major changes are also suggested regarding the Scope of Trading. The obsolescence of certain older technologies has been noted, leading to the proposed deletion of provisions related to Securities Trading through Wireless medium on Wireless Application Protocol (WAP) platform, as these standards have been superseded by faster mobile technologies. This move was supported by MIIs who argued that WAP is no longer suitable for modern trading environments (Para 6).

Enhanced Cybersecurity and Resilience Standards​

A substantial focus of the consultation is the creation of common IT-related provisions for all MIIs—covering Exchanges, Clearing Corporations, and Depositories. This forthcoming consolidated circular aims to standardize requirements around Annual System Audit, Business Continuity Plan and Disaster Recovery (BCPDR), Cyber Security and Cyber Resilience, and Capacity Planning.

To bolster resilience, several advanced concepts are being incorporated into the guidelines. The consultation proposes updating Network Security protocols, moving away from hard-coded names toward principle-based security measures. This includes adding requirements like Network Segmentation between public-facing systems and core trading infrastructure (Para 5). Mandatory two-factor authentication has also been suggested in conjunction with dynamic passwords to strengthen security standards (Para 5).

Operational oversight is also being rationalized. The reporting requirement for algorithmic trading data, which previously necessitated submission to SEBI, is proposed to be replaced by a process where exchanges submit the report to the Standing Committee on Technology (SCOT) and disclose details on their website, thus reducing compliance burden (Para 38).

Rationalizing Brokerage and Algorithmic Trading Oversight​

The rationalization extends into the relationship between Exchanges and Stock Brokers. Provisions related to broker client relationships—including KYC adherence, investor information management, and handling complaints—are proposed for deletion from MSECC. This is because these areas primarily pertain to brokers and are already adequately covered in other designated regulatory circulars (Para 4).

The framework for Algorithmic Trading is also being reviewed. It is proposed that provisions on unique identifiers and tagging of algorithms be merged into the main algorithmic trading guidelines, providing greater clarity and streamlined oversight (Para 71). Furthermore, the mandate requiring a broker to hold adequate back-up and restore systems has been changed from advisory to mandatory for business continuity purposes (Para 10).

Easing Compliance Through Consolidated Guidance​

The introduction of a consolidated circular for MIIs marks a shift toward integrated governance. This single circular is intended to house common IT-related provisions across all regulated entities, thereby avoiding segment-wise duplications and inconsistencies that plagued previous guidelines. The standardization effort encompasses aligning capacity planning frameworks for exchanges and clearing corporations with those used by Depositories (Para 75).

In an efforts to reduce procedural delays, the timeline for submitting system audit reports has been rationalized. Instead of a rigid two-stage review process involving both the SCOT and Governing Board within specific monthly deadlines, the revised timeline allows MIIs three months from the end of the audit period to submit the report along with comments from the SCOT (Para 43).

The SEBI Consultation Paper invites public comments on these detailed proposals. Industry stakeholders are invited to provide feedback on the suggested merges and deletions, as well as any potential risks associated with removing specific provisions like those related to older WAP trading technologies. The submission deadline for expert commentary is July 13, 2026.