What happened
On 22 October 2026, SEBI released a 12-page consultation paper proposing a meaningful deregulation for India's market infrastructure institutions: recognised stock exchanges and depositories would be able to undertake activities "related or incidental to" their own business — and deploy funds in them — without prior SEBI approval. Recognised clearing corporations are excluded from the relief. Stakeholders can submit comments, with rationale, by 12 November 2026.
The proposal in one paragraph
Today, Regulation 38(2) of the SECC Regulations, 2018 and Regulation 7(c)(i) of the D&P Regulations, 2018 operate as a near-blanket bar: no market infrastructure institution — recognised stock exchange, clearing corporation or depository — may carry on any activity, with or without deployment of funds, without SEBI's prior approval. The only existing carve-outs are narrow: treasury investments under a board-approved investment policy, and unrelated activities housed in a separate legal entity or strategic business unit with SEBI's approval.
The consultation paper proposes inserting a third proviso to both Regulation 38(2) (SECC) and Regulation 7(c)(i) (D&P). The proviso would permit a recognised stock exchange or depository to engage in activities "related or incidental to" its activity "without prior approval of the Board, subject to such conditions as may be specified by the Board". The enabling language matters: it delegates to SEBI the power to prescribe the conditions by circular — and the paper attaches a draft circular (SEBI/HO/MRD/MRD-PoD-X/P/CIR/2026/, from the Market Regulation Department) laying out exactly what those conditions would be.
📌 WHY THIS MATTERS
NSE, BSE, CDSL and NSDL are all MIIs. Any new line of business — however adjacent to their core market function — currently needs SEBI's prior sign-off, a process that slows commercial decision-making. An automatic route for genuinely related activities would materially cut compliance friction for the country's core market utilities.
Key changes at a glance
Old vs new: what changes, what doesn't
❌ CURRENT POSITION
- Prior SEBI approval needed for any activity by an MII, with or without fund deployment.
- Only carve-outs: treasury investments under a board-approved policy, and unrelated activities via a separate legal entity/SBU with SEBI approval.
- Covers all three MII types: stock exchanges, clearing corporations, depositories.
✅ PROPOSED POSITION
- Activities related or incidental to the MII's activity move to an automatic route — no prior SEBI approval.
- Conditions prescribed by SEBI circular: caps, board approval, SOPs, reporting, fit-and-proper.
- Covers stock exchanges and depositories only; clearing corporations excluded.
The two automatic routes, decoded
The draft conditions split eligible activities into two routes. In both cases, remember the automatic route is available only to MIIs other than recognised clearing corporations.
ROUTE A — activities related or incidental to the MII's securities-market activity
Three buckets qualify:
- Activities carried on under directions of SEBI;
- Intra-group transfer of shares held by the MII or its subsidiary to the MII itself or to another subsidiary; or
- Fund deployment by an operating subsidiary exclusively from funds generated out of its own operations.
ROUTE B — investment via an investee company regulated by another financial-sector regulator
An activity similar in function to an MII activity, undertaken through an investee company that is regulated by another Indian financial-sector regulator — provided SEBI had previously approved such activity and it remains unchanged, even if it is not a securities-market activity.
The financial caps: the 5% rule explained
The paper is careful not to let the automatic route become a blank cheque. The aggregate fund deployment by an MII and its subsidiaries under the automatic route in any financial year is capped at the lower of:
- (i) 5% of the MII's net worth as on 31 March of the preceding financial year; and
- (ii) the regulatory minimum net worth prescribed for the MII.
And there is a floor that survives the deployment: the MII's net worth after deploying funds under the route must not fall below 1.5 times the SEBI-prescribed minimum net worth. In other words, the automatic route is sized for genuinely incremental, related bets — not for bet-the-firm diversification.
Safeguards: board oversight does the heavy lifting
Removing SEBI's prior approval does not mean removing oversight. The draft conditions shift the gatekeeping to the MII's Governing Board and to SEBI's ongoing supervision:
- Governing Board approval is needed for each new activity or instance of fund deployment. The board must satisfy itself, among other things, that there is no conflict of interest and that adequate resources — including liquid net worth for technology upgrades, the Investor Protection Fund, the Settlement Guarantee Fund, innovation and investor awareness — are available.
- Board-approved Standard Operating Procedures must govern the route.
- Logo/brand sharing only at arm's-length pricing or as specifically approved by the board; resource sharing only under a ring-fenced agreement.
- No conflict of interest with the MII's core functions or its first-level-regulator role.
- Fit-and-proper criteria must be met at all times by the investee companies, their directors and their shareholders.
- Half-yearly reporting to SEBI within 30 days of the end of each half-year, giving particulars of the activities and the basis on which each is treated as related or incidental.
- Any activity that does not satisfy the automatic-route conditions continues to need prior SEBI approval.
Who is affected
- Recognised stock exchanges (NSE, BSE and regional exchanges) and depositories (CDSL, NSDL) — the direct beneficiaries of the automatic route.
- Recognised clearing corporations — deliberately excluded; their prior-approval regime continues unchanged.
- Subsidiaries and group entities of MIIs — intra-group transfers and subsidiary fund deployment are expressly within Route A.
- Law firms, CS and compliance professionals advising MIIs — the consultation deadline of 12 November 2026 is the immediate action point.
- Investors in listed MIIs (notably BSE Ltd., which is itself listed) — the proposal changes the governance perimeter for how these companies deploy capital.
What to do next
📝 COMMENT ON THE PAPER — DEADLINE 12 NOVEMBER 2026
- Comments and suggestions, with rationale, must reach SEBI by 12 November 2026.
- Submit through SEBI's public-comment portal: sebi.gov.in > Public Comments (the portal link given in the paper).
- For technical issues in submission, the paper gives the email [email protected] with the subject 'Public Comments w.r.t. Review of Regulation 38(2) of the SECC Regulations, 2018 and Regulation 7(c)(i) of the D&P Regulations, 2018'.
- Remember: this is a consultation paper, not final law. Nothing changes until SEBI issues the final amendments and the enabling circular.
Frequently asked questions
Q1. Does the automatic route apply to clearing corporations?
No. The consultation paper expressly excludes recognised clearing corporations. The automatic route is available only to recognised stock exchanges and depositories.
Q2. What is the maximum an exchange can deploy under the automatic route in a year?
The aggregate deployment by the MII and its subsidiaries in a financial year is capped at the lower of 5% of the MII's net worth as on 31 March of the preceding financial year and the regulatory minimum net worth. After the deployment, net worth must remain at or above 1.5 times the prescribed minimum.
Q3. Does "no prior SEBI approval" mean no board approval either?
No — quite the opposite. Each new activity or instance of fund deployment under the route needs the prior approval of the MII's Governing Board, which must check for conflicts of interest and confirm adequate resources (technology upgrades, IPF, SGF, innovation, investor awareness). Board-approved SOPs are also mandatory.
Q4. What happens to activities that don't fit the automatic route?
They continue to need prior SEBI approval, as today. The automatic route is an additional carve-out, not a replacement of the existing approval framework.
Q5. When do the changes take effect?
Not yet fixed. This is a consultation paper; the final amendments to the SECC and D&P Regulations and the enabling circular will follow only after SEBI considers the comments received by 12 November 2026.
Q6. What is an MII?
A Market Infrastructure Institution — recognised stock exchanges, recognised clearing corporations and depositories. They are first-level regulators of the securities market, which is why their non-core activities are tightly controlled.
Sources
- Primary source: SEBI — "Consultation Paper on Review of Regulation 38(2) of the SECC Regulations, 2018 and Regulation 7(c)(i) of the D&P Regulations, 2018 for providing an automatic approval route for investment in related activities by the MIIs", issued 22 October 2026.
Official SEBI consultation paper page (sebi.gov.in) - Official PDF: Consultation paper PDF (12 pages, sebi.gov.in)
Disclaimer: This article is an independent summary of SEBI's consultation paper dated 22 October 2026. It is for information only and is not legal advice. The proposal is open for public comment until 12 November 2026; nothing in it is final law. Readers should consult the official SEBI document and qualified professionals before acting.
