SEBI reviews broker net-worth, IPO pricing, MF TER

What SEBI is changing and why it matters

SEBI chairman Tuhin Kanta Pandey said the regulator is reviewing multiple rulebooks across intermediaries, issuers, and market infrastructure to improve efficiency and reduce friction. The work spans stockbroker net-worth norms, IPO price discovery, onboarding for foreign investors, and compliance requirements for research analysts. SEBI is also proposing updates to mutual fund borrowing rules and has already approved significant changes to mutual fund fee and expense disclosures. In parallel, the regulator is moving toward market-structure upgrades such as a closing auction mechanism and a technology roadmap for market infrastructure institutions (MIIs). The stated objective across these actions is to simplify compliance where possible while aligning requirements with scale, risk, and evolving market practices.

Variable net-worth norms for stockbrokers

Pandey said SEBI is reviewing the framework for variable net-worth requirements for stockbrokers. The intent is to ensure capital requirements better reflect a broker’s operational scale and risk profile. SEBI has also reviewed stockbroker regulations with an aim to simplify compliance and align rules with changing market practices. Measures cited include a common reporting platform to reduce duplication across exchanges, a rationalised penalty framework, and a calibrated approach towards technical glitches. The broader message from the regulator is that older constructs are being updated, and compliance is being redesigned to be more proportionate.

IPO price discovery: focus on pre-open call auction

SEBI is examining improvements in IPO price discovery through the pre-open call auction mechanism. The review also covers relisted securities, with the goal of facilitating more stable and efficient market openings. Separately, Pandey said SEBI is working on a plan to introduce a closing auction mechanism for stock market trading to aid in better price discovery. Later in the day referenced in the report, SEBI allowed an auction mechanism for closing prices, described as a global best practice for the Indian market. Together, these initiatives point to a push to improve how opening and closing prices form, especially when liquidity and information flow are concentrated.

Easing compliance for research analysts

For research analysts, SEBI is working towards easing compliance requirements. Pandey specifically referred to rationalising obligations such as call recording during institutional interactions. The comments sit alongside the regulator’s broader effort to reduce duplication and remove ambiguity across market rules. The intent, as described by SEBI, is not to add more rules, but to build a “smarter rulebook” that is simpler to understand and supportive of innovation.

Mutual funds: intraday borrowing framework and liquidity management

Pandey said SEBI is proposing a more practical framework for mutual funds to use intraday borrowing. The proposal would allow intraday borrowing not only as a contingency measure, but also as a tool for managing temporary liquidity mismatches. This comes alongside an end-to-end review of mutual fund regulations that SEBI completed over the past year, including addressing residual issues around mutual fund classification. The emphasis is on modernising older rules and making day-to-day fund operations smoother without diluting oversight.

Mutual fund fee overhaul: TER, BER and brokerage caps

SEBI’s board approved major changes to the mutual fund industry’s fee structure to make it more transparent and cost-efficient for investors. The regulator mandated disclosure of all components of costs charged by asset management companies to investors. It reduced the total expense ratio (TER) across categories, including equity and debt funds, and also lowered brokerage fees.

SEBI said expense ratio limits will now be called base expense ratio (BER) and would exclude statutory levies such as securities transaction tax (STT), goods and services tax (GST) and stamp duty. Under the approved framework, the total expense ratio will be the sum of the base expense ratio and brokerage, besides regulatory and statutory levies. Brokerage caps were tightened: for cash market transactions, the cap was reduced to 6 basis points (bps) from 12 bps; for derivative transactions, it was reduced to 2 bps from 5 bps. SEBI also scrapped the additional 5 bps that fund houses were earlier allowed to charge across schemes.

Foreign investor access, KYC and onboarding streamlining

Pandey said some reforms are intended to make it easier for foreign investors to invest in India. The broader reform list also refers to measures to simplify access for foreign investors and to enable enhanced information sharing through KRAs (KYC Registration Agencies). The agenda mentioned in the report includes relaxing KYC rules for NRIs and standardising mutual fund folio onboarding processes. Alongside these, SEBI has highlighted investor protection tools such as validated UPI handles and “SEBI Check”.

Governance, conflict-of-interest norms and ‘fit and proper’ revamp

SEBI has introduced stricter conflict-of-interest norms for officials, signalling a push for transparency. Another change cited is a revamp of the “fit and proper” criteria for intermediaries, including removal of automatic disqualifications to ensure a fairer regulatory process. The regulator also highlighted governance measures across the ecosystem, including mandating external independent performance evaluation for MIIs. It also spoke about designating the compliance officer in regulated entities as key managerial personnel.

SEBI also mandated that regulated entities dissociate from unregulated entities that make unverified claims on returns or performance. The broader set of changes includes relaxed rules for AIFs, REITs and InvITs.

What SEBI plans to review next: LODR, settlement and PMS

Pandey said SEBI’s next focus areas include reviewing the Listing Obligations and Disclosure Requirements (LODR) regulations, settlement regulations, and Portfolio Management Services (PMS) norms. SEBI has begun work on the LODR review with the stated aim of simplifying and streamlining corporate disclosure norms. A consultation paper on settlement regulations is expected soon, as per Pandey’s remarks. The regulator framed the exercise as a comprehensive review after public consultations, intended to eliminate redundancy, remove ambiguity, and update outdated constructs.

Key measures at a glance

Market impact and why these reforms are being watched

The fee and expense changes in mutual funds directly affect how investors see and compare scheme-level costs, because SEBI is mandating a clearer break-up and changing how TER is constructed using BER plus brokerage and levies. The brokerage cap reductions are explicit and measurable, and they also change the economics of fund transactions in cash and derivatives segments. In market microstructure, the focus on pre-open call auctions for IPOs and relisted securities, along with the closing-auction mechanism, targets price discovery at the two most sensitive points of the trading day. For intermediaries, the review of variable net-worth norms and simplified broker compliance aims to align regulatory requirements with operational scale and risk rather than applying a one-size-fits-all approach.

Conclusion

SEBI’s current reform pipeline covers intermediaries, issuers, mutual funds, and market infrastructure, with a clear emphasis on simplifying compliance, improving price discovery, and tightening governance standards. The regulator has already approved changes to mutual fund fees, expenses, and brokerage caps, while other initiatives such as broker net-worth norms, IPO auction mechanisms, and the LODR and settlement reviews remain in progress. Pandey has indicated that consultations and stakeholder discussions will continue as SEBI moves toward updated frameworks across multiple regulations.