Sethurathnam Ravi: A Blueprint to Reform India’s Outdated Capital Market Rules

To transform India into a global financial powerhouse, outdated capital market regulations must evolve alongside digital innovation, changing investor behavior, and rising cybersecurity concerns.

Evolution of India’s Capital Markets

Since the economic liberalization of 1991, India’s capital markets have undergone a significant transformation. The digital revolution democratized access to financial services, enabling investors across the country to participate in markets once dominated by institutional players. However, regulatory frameworks have not kept pace with these structural changes. As India aims to strengthen its position on the world financial stage, modernizing legacy policies becomes crucial for supporting innovation, securing investor interests, and ensuring a resilient financial ecosystem.

Updating the Securities Contracts (Regulation) Rules (SCRR)

The Securities Contracts (Regulation) Rules, 1957 (SCRR) were originally designed for an era when stockbrokers acted solely as intermediaries. Today, brokers have evolved into full-fledged financial service providers offering a wide range of investment solutions. Yet, the current SCRR restricts them from engaging in non-securities activities, limiting innovation and growth.

To align with global best practices followed in countries like the US, UK, and Singapore, the SCRR should allow stockbrokers to diversify their offerings. Enabling this shift would support government initiatives like Make in India, drive new revenue streams, and foster a more competitive financial landscape.

Encouraging Revenue Diversification

Modern broking firms now generate a significant share of revenue from non-broking activities. With over 50% of earnings in some cases stemming from services like wealth management, fintech solutions, and advisory platforms, the demand for integrated financial experiences is evident.

Encouraging this shift through progressive regulation ensures that firms can adapt without compromising market integrity. Supporting strategic expansion will also attract new talent, capital, and technology to the sector—crucial for long-term growth.

Clarifying SEBI Circulars for Operational Flexibility

While SEBI Regulation 16A aims to curb unauthorized investment advice, vague interpretations—especially around "indirect associations"—can unfairly burden brokers with responsibility for third-party activities on platforms like WhatsApp or Telegram.

Similarly, the 2024 NSE circular mandating client referrals only through Approved Persons (APs) risks stifling organic growth via modern digital marketing channels. To maintain a balance between compliance and innovation, SEBI should provide clearer guidelines, conditional exemptions, and a framework that supports digital adoption without increasing regulatory friction.

Cybersecurity: A Priority in the Digital Age

As the capital markets ecosystem becomes more digitally interconnected, cybersecurity emerges as a top concern. With financial institutions managing sensitive data and high-value transactions, the risk of cyber threats cannot be overstated.

Although SEBI has issued comprehensive cybersecurity guidelines, continuous stakeholder engagement, periodic updates, and industry-wide awareness programs are essential. Proactive defense mechanisms will protect investor trust and ensure the integrity of India’s digital financial infrastructure.

Conclusion: Creating a Future-Ready Regulatory Framework

India stands at a critical juncture where digital innovation, global integration, and investor sophistication are shaping the next chapter of its capital markets. However, for this evolution to be meaningful, regulatory modernization is non-negotiable.

By updating the SCRR, promoting business diversification, refining compliance frameworks, and bolstering cybersecurity defenses, India can position itself as a global leader in capital markets. A robust, adaptable, and forward-looking regulatory architecture will not only attract international investors but also drive inclusive and sustainable economic growth.

Author:

Sethurathnam Ravi (S. Ravi)

Promoter & Managing Partner, Ravi Rajan & Co. LLP

Former Chairman, Bombay Stock Exchange