India’s markets regulator has proposed giving stock exchanges and depositories greater freedom to invest in related businesses without seeking prior approval for every transaction.
The Securities and Exchange Board of India, or SEBI, said the current framework can subject relatively low-risk investments to the same approval process used for larger and more strategic transactions.
Under the new proposal, certain categories of investments could instead be approved internally by the boards of exchanges and depositories, subject to financial safeguards.
The change is still at the consultation stage and has not yet become a final rule.
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Some Investments Could Avoid Prior SEBI Approval
SEBI has proposed removing prior approval requirements for investments closely connected with the core functions of market institutions.
That would include investments linked to activities already permitted for stock exchanges and depositories.
The regulator has also proposed exempting investments made in initiatives that SEBI itself has mandated.
In such cases, requiring another round of regulatory approval may add little additional oversight.
A similar exemption could apply when an exchange or depository invests through a subsidiary using internally generated funds.
Investments in entities regulated by other financial-sector regulators may also qualify for the relaxed process.
The aim is to distinguish routine or lower-risk investments from transactions that could create larger financial, governance or conflict-of-interest concerns.
Why Exchanges Need Regulatory Approval
Stock exchanges and depositories occupy a special position in the financial system.
They are commercial organisations, but they also perform critical market-infrastructure functions.
Stock exchanges provide trading platforms and enforce rules for listed companies and market participants.
Depositories maintain electronic records of securities ownership and help settle trades.
Because of this role, regulators closely monitor where these institutions invest their money and what businesses they enter.
An exchange expanding into an unrelated or risky business could create financial or governance concerns that do not arise in an ordinary private company.
SEBI therefore requires regulatory oversight over many investment decisions.
The latest proposal does not remove that oversight completely.
Instead, it attempts to reduce the need for prior approval when the risk is relatively limited.
Boards Would Carry More Responsibility
The proposed relaxation would place greater responsibility on the boards of exchanges and depositories.
SEBI says eligible investments would still need appropriate internal oversight.
Financial safeguards would also continue to apply.
That means exchanges would not receive unrestricted freedom to deploy money wherever they choose.
Their boards would have to assess whether an investment falls within the permitted category and whether the institution has sufficient financial resources.
The regulator could still examine transactions through supervisory and disclosure mechanisms.
This approach reflects what SEBI describes as risk-based regulation.
Under a risk-based system, regulators devote more scrutiny to activities that could cause greater harm rather than applying the same approval burden to every transaction.
Publicly Listed Exchanges Seek Greater Flexibility
The proposal could have practical importance for India’s increasingly commercial market infrastructure institutions.
Several exchanges and related entities now operate as large businesses with multiple technology, data and financial-market interests.
Some are also publicly listed.
They may want to invest in technology platforms, market-data companies, financial infrastructure or other businesses connected to their existing operations.
Requiring SEBI approval for each transaction can lengthen the investment process.
The regulator said current rules can treat small and low-risk investments in much the same way as large strategic transactions.
Relaxing that requirement could give exchanges and depositories greater flexibility to diversify their businesses and respond more quickly to commercial opportunities.
However, the changes would need to balance that flexibility against their public responsibilities.
Market infrastructure institutions handle systems that are fundamental to trading, settlement and investor protection.
Failures or conflicts of interest at these organisations can affect the wider securities market.
Part of a Wider SEBI Deregulation Push
The proposal fits into a broader effort by SEBI to simplify rules governing Indian financial markets.
In September, the regulator separately proposed easing restrictions on who can serve on the boards of stock exchanges, clearing corporations and depositories.
SEBI argued that existing rules could exclude qualified directors merely because another company within the same large corporate group was connected to a broker or market intermediary.
The regulator has also proposed reforms covering portfolio managers, derivatives trading and foreign-investor access during 2026.
Together, these measures show a shift towards simplifying compliance where SEBI believes the underlying investor-protection risk is limited.
The latest proposal does not mean exchanges will be allowed to make unrestricted investments.
Large, strategic or higher-risk transactions could still require closer regulatory scrutiny.
SEBI has invited comments from market participants and the public until November 12.
The regulator could modify the proposal after reviewing that feedback before introducing final rules.
What this means for you:
The change is mainly aimed at reducing regulatory delays for India’s stock exchanges and depositories. For investors, the key safeguard will be whether greater operational freedom is matched by strong board oversight and financial controls.
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