The stock market today is much more popular than before — more people are taking an interest, and new ways to invest have emerged, from mutual funds and derivatives to algorithmic trading and alternative investment funds. With these developments, the old rules alone are no longer sufficient to manage the market effectively.
It has become crucial to protect investors’ security and ensure transparency in trading and investments. Recognizing this, SEBI recently updated several rules to keep the market safe, fair, and well-regulated.
The Securities and Exchange Board of India (SEBI) is India’s capital markets regulator — the authority that oversees the stock exchanges, brokers, mutual funds, derivatives markets, and investment products. Its main purpose is to ensure that financial markets are transparent, fair, stable, and investor‑friendly.
As markets evolve — with new trading techniques, global investment flows, technology changes, and more retail participation — SEBI updates rules to better manage risk, transparency, fairness, and market integrity.
In 2025–2026, SEBI introduced or updated many important regulations, aiming to:
✔ Improve fee transparency in mutual funds
✔ Provide fair access to algorithmic trading
✔ Strengthen risk controls in F&O derivatives
✔ Improve closing & opening price mechanisms
✔ Make specialized investment funds (SIFs) more accessible
✔ Update broker compliance & market conduct standards
✔ Enhance investor protection and disclosure frameworks
These changes affect everyone — from small retail investors to professional traders and institutional players — and many will go into effect over the next few months. In some cases, SEBI has phased implementation to give market infrastructure time to adapt.
So, let’s understand some of these updated rules in detail, so you can make informed investment decisions and invest wisely in today’s evolving stock market.
Major Overhaul in Mutual Fund Regulations
Key Point — Transparent Fees, Lower Costs, Better Governance
SEBI has completely overhauled Mutual Fund regulations, replacing the old 1996 framework. The aim is to provide fee transparency and eliminate hidden costs for investors.
The main objectives of this overhaul:
✔️ Clearly display the Total Expense Ratio (TER) — no hidden costs.
✔️ Brokerage, turnover costs, taxes (GST, STT, CTT, Stamp Duty) will now be shown separately, not included in TER.
✔️ Clear disclosure of performance-linked fees.
✔️ Simplified exit load processing mechanisms.
✔️ Discussion on fixed operational costs like KYC and depository charges to provide relief to smaller funds.
📌 Example
➡️ Earlier: If you invested ₹100 in a Mutual Fund and ₹2 was deducted, you never knew how much was AMC fee, GST, or brokerage — all costs were bundled.
➡️ Now, under SEBI’s new framework, you will clearly see:
- AMC management fee = x%
- Brokerage fee = y%
- Taxes = z%
This improves transparency and helps investors choose low-cost funds.
🔹 Other Changes
- 5 bps extra charges may be removed
- Caps may be applied on brokerage expenses
- Costs and fees will be displayed separately
👉 This will increase investor confidence.
🔹 Impact on Investors
✔️ Clear expense visibility → easier fund selection
✔️ Hidden costs removed → long-term benefit
✔️ Passive funds and ETFs also benefit
✔️ AMCs may need to restructure operations
This is a game-changer for everyday investors, as it directly affects their returns.
Algorithmic Trading (OTR Framework) — Fairness and Efficiency
Rule Change — Revision of Order-to-Trade Ratio (OTR)
SEBI has revised the Order-to-Trade Ratio (OTR) framework for Algorithmic Trading. Previously, strict OTR penalties could penalize even legitimate algo trades. The new rules are more logical and market-friendly.
📌 Key Changes
🔹 Wider OTR Exemptions:
Algo orders within ±0.75% price range will not face penalties.
🔹 Equity Options Exemption:
Orders within ±40% price band (or ₹20) in options trading are excluded from OTR penalties.
🔹 Market Makers Exempted:
Orders placed by market makers providing liquidity are exempt from OTR penalties.
🔹 Effective from April 6, 2026
📌 Example
➡️ Earlier: If an algorithmic order was continuously submitted, penalties could apply due to high OTR, even if it was legitimate trading.
➡️ Now:
- Orders within ±0.75% price range are penalty-free.
- Options within ±40% price band are excluded.
👉 This means real, genuine algo trading will not be penalized.
🔹 Impact
✔️ Improves algo-based liquidity
✔️ Creates a fair environment for retail algo products
✔️ Prevents misuse of penalties
✔️ Gives brokers and exchanges a chance to improve OTR frameworks
F&O (Futures & Options) Trading Rules — Margin & Risk Controls
SEBI has tightened risk management and margin rules for F&O to control extreme speculation and volatility.
📌 Key Changes
✔️ Calendar Spread Margin benefit removed — no benefit on expiry day
✔️ Tighter margins for single-stock derivative strategies
✔️ New intraday position limits and monitoring to reduce speculative exposure
📌 Example
➡️ Earlier: Traders could benefit from calendar spreads across different expiries, reducing margin costs.
➡️ Now: This benefit ends on expiry day, reducing unexpected margin shocks.
👉 Objective: Systematically reduce market risk.
🔹 Impact
✔️ Stronger risk management
✔️ Tighter controls on speculative trading for retail traders
✔️ Improved market stability
Closing Price & Opening Price Framework — New Auction System
Introduction to Closing Auction Session (CAS)
SEBI has introduced Closing Auction Session (CAS) in the equity cash segment. This aims to determine closing prices fairly and transparently, aligned with global standards.
📌 How CAS Works
• Timing: 3:15 pm – 3:35 pm (20 minutes)
• 3:15–3:20 → Reference price calculation (VWAP / previous sessions)
• 3:20–3:25 → Market + limit orders allowed
• 3:25–3:30 → Only limit orders, no cancellations
• 3:30–3:35 → Auction match & equilibrium price determines closing price
• Pre-open session revised (effective Sept 7, 2026)
📌 Example
➡️ Earlier: Closing price was determined using the last 30 minutes’ volume-weighted average price (VWAP).
➡️ Now: All orders are pooled in an auction, and the price with maximum executed volume becomes the closing price.
👉 Benefits: Passive funds and indices benchmarks (like NSE Nifty/Sensex) get a fairer closing price.
🔹 Impact
✔️ Consistency in equity derivatives and indices settlement
✔️ More robust market closing benchmark
Specialised Investment Funds (SIF), REITs, InvITs — Flexibility & Investor Access
Recent Proposals & Changes
SEBI has proposed lowering the minimum investment threshold for SIFs, allowing smaller investors to participate.
It also requested public feedback on InvIT/REIT operational rules, including:
- Extending project holding periods
- Borrowing flexibility
- Redefining strategic investors
📌 Example
✔️ Proposed SIF minimum investment: around ₹1,000
✔️ InvITs: discussion on flexible borrowing caps
👉 Goal: Easier access for small investors and a better infrastructure funding ecosystem
Significant Indices — New Governance Framework (Proposed)
Key Proposal
SEBI proposed a comprehensive framework for significant indices, including a minimum AUM threshold of ₹20,000 crore to ensure accountability and transparency of index providers.
👉 Impact: Passive investing ecosystem benefits — index funds tracking major indices get clear governance structures
Investor Protection & Compliance Enhancements
SEBI has also introduced initiatives to improve investor awareness and participation:
✔️ Investor survey: 63% are aware of market products, but only ~9.5% actively invest — focus on increasing participation
✔️ Emphasis on retail grievance redressal and inclusion
✔️ Frequent discussions on ethics reforms, disclosure norms, and broker governance
SUMMARY
| Rule / Change | Main Objective | Impact |
| Mutual Funds overhaul | Transparency, fee clarity | Investors pay less, clearer costs |
| Algo Trading (OTR) revision | Fair algo participation | Improved liquidity, fewer false penalties |
| F&O risk rules | Stable derivatives market | Reduced speculation risk |
| CAS (Closing Auction) | Fair closing price | Accurate benchmark |
| SIF/InvIT proposals | Accessibility & flexibility | More investor access |
| Significant Indices | Governance for major indices | Transparency |
| Investor & compliance | Participation, disclosure | Improved trust |
Final Takeaway
These SEBI rules are not only crucial from a regulatory perspective but also align the Indian market with global standards, making it transparent, risk-managed, and investor-friendly.
They affect retail investors, traders, fund managers, and institutions, and are focused on:
- Investor protection
- Fee transparency
- Risk mitigation
- Fair price discovery
Source: sebi
