Steps of SEBI for Introducing Key Reforms to Strengthen Financial Markets

SEBI’s 209th Board Meeting – (March 24, 2025)

The Securities and Exchange Board of India (SEBI) convened its 209th Board Meeting in Mumbai on March 24, 2025, approving several key regulatory reforms across various sectors, aimed at increasing market transparency, reducing compliance burdens, and enhancing governance.

1. Raising FPI Additional Disclosure Threshold – ₹25,000 Cr to ₹50,000 Cr

SEBI increased the threshold for mandatory additional disclosures by Foreign Portfolio Investors (FPIs) from ₹25,000 crore to ₹50,000 crore of equity AUM. This decision comes in response to the sharp rise in equity trading volumes, which have more than doubled since FY 2022–23. Earlier, SEBI’s circular from August 24, 2023, required FPIs crossing ₹25,000 crore in equity AUM to reveal their ultimate beneficial owners down to the natural person level. This rule is based on Press Note 3 (2020), which was introduced to protect Indian companies from opportunistic takeovers, particularly from neighbouring countries. The new ₹50,000 crore limit will apply only to very large FPIs, so smaller investors will have less compliance burden. 

However, FPIs that hold more than 50% of their AUM in a single corporate group will still need to disclose detailed ownership to prevent misuse of rules under Minimum Public Shareholding (MPS) and Substantial Acquisition of Shares and Takeovers (SAST). Regardless of these changes, all FPIs must continue to follow the Prevention of Money Laundering Act (PMLA) rules.

Impact:

This adjustment reduces the compliance burden for smaller FPIs while maintain the transparency for larger players who could influence market stability. All FPIs regardless of size, must continue adhering to PMLA norms.

2. Category II Alternative Investment Funds (AIFs) – Eased Compliance via Debt Classification

SEBI has made it easier for Category II AIFs to comply with investment rules. These AIFs usually invest in unlisted securities, but recent changes in SEBI’s LODR Regulations now require new debt to be issued as listed securities. This has reduced the availability of unlisted debt. To solve this issue, SEBI will now allow investments in listed debt rated ‘A’ or below to be treated the same as unlisted securities. This means AIFs can still meet the unlisted investment requirement while supporting companies with lower credit ratings.

Impact:

This change offers flexibility to AlFs, ensuring they can meet investment norms while potentially boosting the issuance and trading of lower-rated debt securities, enhancing liquidity in this segment.

3. Governance Overhaul for Market Infrastructure Institutions (MIIs)

Market Infrastructure Institutions (MIIs) include stock exchanges, clearing corporations, and depositories. SEBI has introduced several governance-related reforms to strengthen these institutions. For Public Interest Directors (PIDs), SEBI clarified that their appointment does not need shareholder approval—only SEBI’s nod is required. If an MII chooses not to reappoint a PID after their first term, they must provide a reason and submit it to SEBI. SEBI has also stopped prescribing cooling-off periods for people like Managing Directors (MDs), Directors, and Key Managerial Personnel (KMPs) who move between competing MIIs.

Now, the MIIs can decide their own policies. SEBI also changed how certain important KMPs—like the Compliance Officer, Chief Risk Officer, Chief Technology Officer (CTO), and Chief Information Security Officer (CISO)—are appointed or removed. Instead of the Nomination & Remuneration Committee, now the entire Governing Board must approve such decisions. These steps show SEBI’s focus on strengthening systems, cybersecurity, and market fairness.

Impact:

These updates enhance accountability and technological resilience in Mils, ensuring they prioritize market integrity over commercial interests.

4. Investment Advisers (IAs) and Research Analysts (RAs) – Fee Flexibility

SEBI has now allowed Investment Advisers (IAs) and Research Analysts (RAs) to charge their clients advance fees for up to one year. Previously, IAs were limited to six months and RAs to three months. This relaxation applies only if the client agrees and only for individual and HUF clients. Accredited and institutional clients can follow their own contract terms and are not bound by SEBI’s limits on fees or refund policies. This decision gives more flexibility to advisory businesses while still keeping safeguards in place for retail investors.

Impact:

This provides greater operational flexibility for lAs and RAs, fostering longer-term client relationships while protecting less sophisticated investors.

5. Merchant Bankers, Debenture Trustees, Custodians – Amendment Deferred

Back in December 2024, SEBI had decided that intermediaries like merchant bankers, debenture trustees, and custodians must separate their other regulated activities into different legal entities within two years. But now, the board has decided to delay this plan. They will reassess the ground-level challenges and explore other regulatory options. The aim is to strike a balance—maintaining fairness, avoiding excessive compliance, and protecting business operations. SEBI will bring new proposals in a later meeting.

Impact:

Market participants gain a temporary reprieve from restructuring, with revised proposals expected in future meetings.

6. Constitution of High-Level Committee (HLC) – Conflict of Interest & Disclosures

SEBI has set up a High-Level Committee (HLC) to improve its own internal governance. The committee will examine how SEBI board members and officials handle conflicts of interest, property and investment disclosures, and similar issues. This expert panel includes individuals from constitutional bodies, academia, and both public and private sectors. The goal is to bring SEBI’s internal standards in line with the best international practices. The committee is expected to submit its recommendations within three months.

Impact:

This move reinforces SEBI’s commitment to transparency and ethical conduct, potentially leading to stricter disclosure norms for its leadership.

Conclusion

The amendments approved in the board meeting mark a strategic step towards enhancing the integrity and efficiency of India’s financial markets. By updating disclosure thresholds, refining fee structures, and strengthening governance mechanisms, SEBI has taken significant measures to promote transparency, accountability, and investor confidence across various sectors.

These changes are designed to align regulatory frameworks with the rapid growth of the market, ensuring that larger market participants remain subject to strong disclosure requirements while offering greater flexibility to smaller entities. Ultimately, these decisions aim to create a more stable, transparent, and competitive market environment that supports sustainable growth and enhances the investor experience.

Author – CS Sheetal Patodiya, Senior Associate

Co- Author –  Nikeeta Dumaga, Intern