SEBI Chief Says No To Options-Driven Rules, Flags FPI And Passive Investing

Market regulations in India cannot be dictated solely by the demands of options traders, reports said. The Securities and Exchange Board of India (SEBI) must balance its focus on drawing foreign portfolio investors and growing passive investing, a segment that already makes up roughly 30 per cent of the market.

Speaking on the sidelines of a cyber defence event at the NISM campus in Patalganga on August 17, 2026, SEBI Chairman Tuhin Kanta Pandey said the regulator cannot focus only on options trading.

"It really depends on our success in terms of attracting FPIs, allowing the passive investing, which is already 30 percent of your market and we cannot just put out this thing on this issue just because some people want to do options trading in the way they want to do options trading," Pandey said.

Overhauling the SLBM Framework

SEBI is moving with a "sense of urgency" to overhaul the Securities Lending and Borrowing Mechanism (SLBM). The regulator expects to release a consultation paper "very soon" after hearing from market participants. A working group is already examining the proposed reforms.

"We must get to the reformed SLBM very soon," Pandey said.

Historically, the SLBM market has suffered from limited retail participation and high borrowing costs.

An earlier discussion paper noted that the market was not adequately accessible to the widely dispersed retail segment, which contributed to these high costs.

It proposed exploring transparent online platforms and alternative business models to widen participation.

The upcoming consultation paper could address these constraints to improve liquidity and participation. A deeper SLBM market could also support short-selling activity and improve price discovery.

Closing Auction Is Permanent

A more efficient securities lending framework will directly support the newly introduced Closing Auction Session (CAS).

"It will definitely help in CAS because the CAS would mean more participation, SLBM improves CAS participation," Pandey said.

To advance this objective, clearing corporations NSE Clearing and BSE Clearing recently announced shorter-tenor three-day SLBM contracts. These shorter contracts are expected to facilitate greater securities lending activity around the closing auction.

They could support inter-exchange arbitrage, better price alignment and market efficiency.

Addressing market feedback and social media speculation about reversing the auction mechanism, Pandey confirmed the system will remain in place.

"CAS is here to stay," Pandey said.

SEBI's data shows that since CAS was introduced, participation has increased while volatility and divergences between the Sensex and Nifty have declined.

The regulator continues to analyse unusual trading activity, particularly around expiry days, before deciding whether any changes are required. Any future adjustments will focus on addressing specific constraints or issues identified through the data.