When BW Businessworld sat down with SEBI Chairman Tuhin Kanta Pandey to mark his completion of one year in office, I intended to ask a simple question: has the regulator finally heard the market?
Over the last few years, Dalal Street has complained—sometimes privately, sometimes publicly—that SEBI’s rulebook has been in constant motion. The word “draconian” has been used more than once. Foreign portfolio investors (FPIs) have been net sellers. Retail participation in weekly options has turned into a casino-like frenzy. Mutual funds say they are constrained. Brokers complain about throttled incentives. And hovering over it all is the spectre of high-frequency trading giants—Jane Street, Citadel, Hudson River Trading, Optiver—posting eye-watering profits while lakhs of retail traders record losses.
Pandey did not like the premise.
“First of all,” he told me early in the conversation, “in your questions, you are jumping to some conclusions, which are very simplistic.”
I had suggested that markets were fatigued by constantly changing regulations. He pushed back sharply. He refused to label previous regulatory actions as “draconian,” and he refused to entertain comparisons between his tenure and that of his predecessors. “I would not like you to look at the previous work that way,” he said.
It was clear from the first few minutes: this would not be a confessional interview.
“Indian Market Is Not Hostage”
On the question of FPI outflows—arguably the most politically sensitive issue—Pandey was methodical, almost clinical. He rejected the idea that selling by foreign investors could be attributed to regulatory overreach. FPI flows, he reminded me, are driven by global variables: central bank cycles, Federal Reserve policy, currency expectations, valuations, and relative risk-return dynamics across markets.
“FPIs, by the very nature of them, can move in and out depending upon the post-tax return they provide,” he said.
He anchored the timing of outflows more precisely than critics often do—pointing to consistent exits from around September–October 2024 onward. At the same time, he noted that FPIs have continued participating in primary markets. Flows vary. Context matters. And then he delivered a line that framed the entire discussion:
“Indian market is not… hostage to any one particular investor.” That, more than anything else he said, revealed his worldview. FPIs matter—but so do domestic institutions, retail investors, insurance companies, and pension funds. The Indian market, in his telling, is now structurally resilient.
RBI’s Leverage Curb — Pre-Emptive or Premature?
A related issue concerned the Reserve Bank of India’s recent moves to curb leverage in parts by putting curbs on lending to brokers and poperity traders. The question raised was straightforward: if there are no visible systemic stress indicators—no funding dislocations, no margin spirals, no institutional failures—why tighten now?
Several market participants argue that pre-emptive restraint, in the absence of observable instability, risks dampening liquidity and risk appetite without a clearly articulated trigger.
Pandey did not directly engage with the premise of whether systemic risk was currently elevated. Instead, he framed the issue in broader terms, emphasizing that financial stability is a forward-looking mandate and that regulators often act before vulnerabilities become visible. He noted that institutions operate within defined remits and coordinate where necessary, but stopped short of characterizing the RBI’s move as either precautionary necessity or excess caution.
The exchange underscored a recurring regulatory philosophy: risk containment takes precedence over reactive repair—even if the immediate threat is not obvious to markets.
Ease of Doing Business—Operational, Not Rhetorical
Where he was willing to concede ground was on operational friction. Pandey detailed what he described as extensive engagement with FPIs—“some 77 meetings” across jurisdictions and in India. According to him, the feedback from global investors remains “very, very positive” about India’s structural story.
On T+1 settlement—long criticized by overseas funds—he was firm: India is sticking to it. However, he said SEBI enabled operational adjustments so funds can move money out on settlement day itself. Tax reports can be furnished early; funds can be repatriated in the evening. “This has been demonstrated,” he insisted.
Registration, another friction point involving SEBI, RBI, income tax authorities, and KYC processes, has seen digitization. An FPI outreach cell has been set up. Webinars were conducted. A dedicated contact channel was created. India’s digital signature system is being leveraged to eliminate paper bottlenecks.
His argument was consistent: the regulator is not tightening arbitrarily; it is recalibrating operational efficiency. Retail Speculation: Weekly Options Under the Lens
The real stress point, however, lies in derivatives. The questions reflected a broader political and market anxiety over retail protection versus market efficiency. Retail losses in short-dated options have been staggering. I asked whether SEBI agrees with the government’s move to hike Securities Transaction Tax to curb speculation. Pandey declined to comment on tax policy.
But he did acknowledge the problem—carefully narrowing its scope. “Futures we don’t have problems in,” he clarified. “It is short-dated options… the weekly option… where there was excessive hyperactivity on the expiry date.”
Rather than ban instruments or revert immediately to monthly expiries, SEBI has opted for structural recalibration—position limits, improved risk metrics, delta-based open interest calculations, and phased interventions introduced across late 2024 and 2025.
Would SEBI consider scrapping weekly expiries altogether? Pandey would not prejudge. If needed, it would go through public consultation. Not soundbites—process.
The Jane Street Question
Then came the unavoidable question: high-frequency trading firms.
Retail investors are losing money. Meanwhile, firms like Jane Street, Citadel, Hudson River Trading, and Optiver have posted enormous profits in India’s derivatives markets. The Jane Street episode, in particular, triggered intense scrutiny.
Is SEBI studying this pattern? Is it looking at HFT players through that lens? Even China has curbed high-frequency trading—why not India?
Pandey’s body language shifted.
“First of all, we don’t take names,” he said.
I pointed out that the data I was referencing was public. He did not dispute that. But he made something else clear: “The case you mentioned is also subject to this.”
In other words—sub judice.
“It will be highly improper for me to give any comment on that,” he said.
I pressed on timelines—nearly a year since SEBI’s interim action in the Jane Street matter. How long does it take to conclude? Again, he declined to engage specifics. Procedural constraints apply. The matter is before the appropriate forum. If I was seeking outrage or rhetorical fire, I did not get it. I got regulatory restraint. Mutual Funds, Brokers, and ‘Free Markets’
I raised concerns from the mutual fund industry regarding a standard operating procedure introduced in August 2024—one that traders argue makes aggressive execution difficult and requires justification if price bands are breached. Pandey did not defend it outright. “I will have this issue,” he said. It was neither denial nor admission—just a promise of review.
On brokers and exchange discount schemes, he emphasized balance. Market infrastructure institutions, he reminded me, operate in quasi-monopolistic environments. They cannot be treated as fully unregulated free markets.
“Free market is there,” he said, “but this is also infrastructure.”
His broader doctrine emerged clearly: “optimum regulation.”
“Not too much of a regulation, not too little regulation.”
He emphasized comprehensive reviews over quick fixes, pointing to updated broker and mutual fund regulations as examples of structural rewrites rather than piecemeal amendments.
MII Governance Question
One issue I also raised with Pandey was the growing perception in the market that Market Infrastructure Institutions (MIIs)—particularly exchanges—are seeing their non-executive chairpersons play a more direct, and sometimes dominant, operational role. Several market participants have privately expressed discomfort over whether governance lines are blurring, especially in institutions that are both listed and systemically critical.
I asked him plainly whether SEBI sees any concern in MII chairmen effectively “running” exchanges instead of confining themselves to oversight roles. Pandey did not concede any structural problem. He responded that exchanges operate through boards that include independent directors and public interest directors, and that governance mechanisms are in place to safeguard market integrity. “There is a board and there are independent directors,” he said, emphasizing that these institutions are designed to function within defined governance frameworks. His answer was measured, but it signaled that SEBI does not currently see a systemic governance drift that warrants intervention.
Independent Directors and Sitting Fees
Another governance issue I placed before Pandey concerned the structure of compensation for independent directors at market infrastructure institutions. There have been instances in the past where independent directors met very frequently over short stretches of time, drawing sitting fees for each meeting. Critics argue that this model can create optics problems and, at worst, perverse incentives.
I asked whether SEBI has considered moving toward a fixed annual remuneration structure for independent directors instead of per-meeting compensation, especially in institutions as systemically important as exchanges and clearing corporations. Pandey did not take a definitive position but acknowledged the concern. He said the issue would be examined, indicating that SEBI is open to reviewing governance compensation structures if necessary.
The Four Ts
Asked about his roadmap, Pandey returned to what he calls the “four Ts”: trust, transparency, technology, and teamwork.
Ease of doing business. Investor protection. Market development. Strengthening equity derivatives. Consultation before circulars. Rationale before regulation.
He insists SEBI increasingly consults on draft circulars and regulations before implementation. In his telling, rule-making today is not opaque decree—it is iterative engagement.
A Regulator Who Won’t Be Rattled
If I expected rhetorical fireworks, Pandey did not offer them. If I sought admissions, he offered process. If I pointed to names—Jane Street, Citadel, Hudson River Trading, Optiver—he invoked judicial discipline.
But what he did make unmistakably clear is this: SEBI will not be hurried into headline decisions. It will not blame instruments without analysis. It will not publicly litigate sub judice matters. And it will not concede that India’s markets are beholden to foreign capital.
Markets may debate whether “optimum regulation” is liberating or constraining. Traders may grumble about weekly options, compliance burdens, or perceived asymmetries. Global funds may complain about settlement mechanics.
But after nearly an hour across derivatives, HFT profits, FPI exits, and governance concerns, one conclusion stood out. If the market is a cage of competing interests—retail traders, global HFT giants, brokers, exchanges, mutual funds—Tuhin Kanta Pandey made it abundantly clear who holds the keys. |
