To unlock India’s potential as a global financial powerhouse, out-dated capital market regulations must evolve in step with digital innovation, investor behaviour, and cyber security challenges.
Indian capital markets have undergone revolutionary transformation since liberalisation of the economy in 1991. The post-liberalisation period’s digital revolution redefined the financial landscape, as technology-enabled models of stockbroking and access to the financial markets were democratized. Yet, even as market structure has altered fundamentally, regulatory frameworks have lagged behind. While India dreams of being a world financial powerhouse, there is a need to go back to out-dated policies, provide space for innovation, and counter cyber security risks in the age of digital investing.
Capital Market Regulation Modernisation
The Securities Contracts (Regulation) Rules (SCRR) that came into effect from 1957 were written when stockbrokers primarily acted as middlemen. They are presently full-service financial service providers. But the SCRR continues to impose retrograde restraints, precluding brokerage houses from pursuing non-securities activities. To facilitate adjustment to the new economic scenario and to enable drive of initiatives such as Make in India, it should permit stockbrokers to diversify their business, as do developed economies such as the US, UK, and Singapore. This not only promotes innovation but also guarantees revenue growth in a highly competitive international environment.
Revenue Diversification
The broking business has seen a revolutionary change from traditional broking services to a diversified suite of financial solutions. Most major firms have indicated that their non-broking revenues now account for more than half of their overall revenues. Such a change depicts changing customer behavior towards single financial platforms and the compulsion on traditional brokers to find new business models. Policies need to be redirected towards encouraging such diversification so that strategic expansion is not achieved at the cost of market integrity.
Need for Clarity in Regulatory Circulars
The Securities and Exchange Board of India (SEBI)’s Regulation 16A is intended to avoid unauthorised investment advice. Yet, the vague interpretation of “indirect associations” can put excessive onus on stockbrokers for third-party platforms’ activities—like those on What Sapp or Telegram—beyond their control. Similarly, the 2024 NSE circular requiring all client referrals to be carried out through approved persons (APs) can suppress organic client capture, particularly where referrals are integrated into traditional digital marketing approaches. More stringent policy guidelines and conditional exemptions, combined with stringent compliance controls, can reconcile risk aversion with operational flexibility.
Cyber security
A Growing Concern With growing dependence on digital infrastructure in capital markets, the danger of cyber-attacks is looming large. Financial institutions handle extremely sensitive information and high-value transactions, which are juicy targets for cyber attackers. Even though SEBI has come out with effective cyber security guidelines, constant interaction with stakeholders, frequent awareness sessions, and revised guidelines are needed to combat emerging threats and protect investor confidence.
India’s capital market environment is poised on the cusp of a new age where digital technology, international integration, and growing investor sophistication will be the hallmark. For such a shift to be sustainable, regulatory reforms cannot be lagging behind. How it updates regulations such as the SCRR, streamlines compliance obligations, enables non-broking diversification, and enhances cyber security defences are not just a policy imperative—it is an economic growth driver. A regulatory structure fit for the future will propel India’s financial sector to a global leadership position and ensure inclusive growth in the digital economy.