SEBI roadmap 2026: short-selling review, bond derivatives

What SEBI signalled and why it matters

Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey has outlined a roadmap aimed at deepening India’s domestic capital markets. Speaking at the ET Now Market Summit, Pandey said the regulator wants to lower market friction, broaden participation, and support responsible growth at a time of heightened global volatility. The priorities he listed include a comprehensive review of the short-selling framework and the Securities Lending and Borrowing Mechanism (SLBM), the possible introduction of derivatives on bond indices in coordination with the Reserve Bank of India (RBI), and fresh guidelines on the responsible use of artificial intelligence (AI).

The remarks matter because India’s derivatives market has grown rapidly, while the cash equities segment is an area SEBI wants to make deeper and more liquid. Pandey indicated that policy changes will be evaluated through a structured process, including inputs from a working group, rather than through immediate decisions.

Push to deepen cash market liquidity

Pandey said SEBI wants cash markets to be more liquid and is examining multiple proposals to support that objective. He pointed to the need to strengthen the linkage between cash and derivatives markets and improve liquidity conditions. The focus, as presented, is on enabling smoother functioning of the underlying market rather than only expanding activity in derivative products.

SEBI’s view, as conveyed by Pandey, is that India’s equity cash market has seen good growth in recent years, but there is still room to deepen liquidity and address the dominance of derivatives trading. The regulator is therefore looking at mechanisms that can support price discovery and participation in the cash segment.

Short selling and SLBM framework under review

A core element of the roadmap is a comprehensive review of short selling and SLBM. Pandey said SEBI is reviewing the framework to identify what is not working in practice and how bottlenecks can be removed. While the regulatory framework has existed for years, adoption has been limited.

Pandey acknowledged that the SLBM framework has not “taken off in the right spirit,” indicating a gap between the intended market role of securities lending and actual usage. At the same time, he avoided attributing the slow uptake to any single factor, stating that the working group’s findings will provide clarity on barriers and possible reforms.

Working group to identify barriers and bottlenecks

Pandey said a working group has been tasked with examining the short-selling and SLBM framework, identifying barriers, and suggesting improvements. He indicated that SEBI is open to changes, but only after the working group report provides an evidence-based understanding of what is constraining adoption.

The emphasis on a consultative approach was also repeated in other public remarks cited in the provided material, where SEBI’s approach was described as calibrated, data-driven, and consultative. This suggests the regulator is preparing to evaluate structural issues in market plumbing rather than announcing a single-point change.

Bond index derivatives with RBI

Pandey also said SEBI will look to introduce derivatives on bond indices, along with the RBI. While the statement did not provide timelines or product design details, it signals regulatory intent to expand market instruments in the fixed income ecosystem through index-based derivatives.

The reference to coordination with the RBI is important because bond market regulation and market infrastructure involve multiple stakeholders. The proposal, as described, is positioned as part of broader efforts to deepen domestic markets.

Stock futures basket: expansion tied to liquidity

Pandey said any expansion of the stock futures list would depend on liquidity in the underlying stock. He indicated SEBI may look at the eligibility criterion, but also cautioned that expansion may not be as large as some market participants would prefer.

His remarks underline that SEBI is linking derivatives eligibility to observed liquidity and trading activity in the cash market. In effect, the stated approach is to avoid bringing illiquid stocks into stock futures, and to base decisions on market quality metrics rather than demand alone.

Delivery margins debate: no immediate decision

Another issue flagged was the debate on whether relaxing margins on delivery-based trades could encourage more activity in the underlying market. Pandey said no immediate decision has been taken and indicated that the question would fall within the scope of the working group’s review.

This positions delivery margins as a policy lever under consideration, but not yet a confirmed change. The regulator’s stance, as shared, is to first understand impacts and constraints before taking action.

AI guidelines: “responsible use” focus

Pandey also outlined plans to issue guidelines on the responsible use of AI. The material provided does not specify the scope, compliance framework, or who the guidelines would apply to, but the stated intent is to ensure responsible growth of markets alongside evolving technology.

The inclusion of AI in the roadmap signals that SEBI is treating technology-driven practices as a governance and market integrity issue, alongside more traditional topics like market liquidity and securities lending.

Clarification on short-selling rules in December 2025

The context includes a SEBI clarification dated 21 December 2025 stating there was no change in the existing regulatory framework for short selling, after a media report suggested changes would become applicable from 22 December 2025. SEBI said explicitly that the question of any change “from tomorrow,” as reported, did not arise.

This clarification is relevant because it separates immediate rule changes from the broader review process. It also signals that any modifications, if they come, would be communicated formally rather than through speculative reporting.

Key facts at a glance

Timeline of the stated regulatory thread

Market impact: what could change structurally

The roadmap, as described, targets how liquidity is built in the cash equities segment and how effectively securities lending supports settlement and price discovery. A better-functioning SLBM can strengthen the linkage between cash and derivatives markets by enabling borrowing and lending of securities that support short selling within a regulated framework.

The bond index derivatives proposal points to a potential expansion of risk management tools in India’s bond market ecosystem, subject to coordination with the RBI. Separately, the emphasis on liquidity-based eligibility for stock futures indicates SEBI’s intention to align derivative expansion with the depth of trading in underlying stocks.

Analysis: why SEBI is focusing on these levers

SEBI’s repeated focus on “market friction” and “deepening participation” suggests the regulator is looking beyond headline volumes and toward market quality. If derivatives activity grows faster than cash market depth, price discovery and liquidity in the underlying can become concentrated, which is why SEBI is examining mechanisms that directly affect cash-market functioning.

The working group route also matters because it sets expectations that reforms, if any, will be framed after identifying operational barriers rather than through broad, immediate relaxation or tightening. And by bringing AI under the “responsible use” umbrella, SEBI is signalling that new technology practices are being viewed through the lens of market integrity and governance.

Conclusion

SEBI Chairman Tuhin Kanta Pandey’s roadmap centres on deepening the cash market through a review of short selling and SLBM, exploring bond index derivatives with the RBI, and introducing responsible AI-use guidelines. The next concrete step highlighted in the material is the working group’s report, which SEBI has indicated will guide any subsequent decisions on reforms, including discussions around delivery margins and market structure changes.