SEBI has introduced a consultation paper allowing stock exchanges and depositories to pursue business expansion without prior regulatory approval. The move targets faster growth in data and technology services while keeping strict financial safety caps. Investors will watch how these firms manage potential conflict-of-interest risks under the new board-led oversight framework.
The Securities and Exchange Board of India (SEBI) has released a consultation paper that could change how Market Infrastructure Institutions (MIIs) scale their operations. Under the proposed framework, stock exchanges and depositories would be able to enter related or ancillary businesses—such as data analytics, technology services, or activities already permitted by other financial regulators—through an automatic approval route. This marks a shift from the current requirement of seeking prior regulatory clearance for every expansion effort.
The regulator intends for this move to reduce bureaucratic friction and allow these institutions to leverage their existing infrastructure more efficiently. By cutting down the time needed for approvals, exchanges and depositories could potentially launch new services faster, which may help them create additional revenue streams from their data and technology capabilities. However, this freedom comes with clear financial and governance boundaries designed to protect market integrity.
To ensure financial stability, SEBI has proposed strict limits on these expansions. Any investment made under this automatic route will be capped at the lower of 5% of the preceding year's net worth or the regulatory minimum net worth requirement. Furthermore, the institutions must ensure that their net worth remains at least 1.5 times the prescribed minimum after any such investment. These safeguards are intended to prevent MIIs from over-leveraging or diverting too much capital away from their core responsibilities.
The proposal specifically excludes clearing corporations, which remain subject to stricter oversight due to their critical role in settling trades and managing systemic risk. For stock exchanges and depositories, the framework shifts the burden of accountability directly to their governing boards. These boards will be responsible for ensuring that commercial expansion does not compromise the institution’s primary duty of maintaining fair and stable markets. The rules mandate arm’s-length arrangements and the ring-fencing of resources to prevent potential conflicts of interest between core operations and new business ventures.
Investors and market participants should track how these companies prioritize their capital spending between core technology upgrades and new, non-core commercial ventures. The requirement for half-yearly reporting will be an important monitorable, as it will provide transparency on whether these expansions are impacting the financial health or the focus of the institutions. The regulator has invited public comments on this proposal until November 12, 2026, which will be the next step before any final guidelines are implemented.