SEBI plans automatic route for MII investments

The Securities and Exchange Board of India has proposed an automatic approval route that would allow recognised stock exchanges and depositories to undertake specified activities and deploy funds without seeking prior regulatory consent. The proposal targets activities related or incidental to their core functions in the securities market and certain similar activities executed through other regulated entities, with the aim of easing compliance burdens and improving the ease of doing business for market infrastructure institutions.

The consultation paper, issued on October 22, 2026, sets out a new framework under which these market infrastructure institutions, excluding recognised clearing corporations, may use an automatic route for eligible activities. Public comments on the proposed regulatory amendments and draft circular have been invited until November 12.

The framework proposes two routes for activities qualifying under the automatic approval mechanism. Route A would cover activities related or incidental to an institution’s core securities market functions, including those undertaken pursuant to SEBI directions, specified transfers of shares between an MII and its subsidiaries, and deployment of funds by operating subsidiaries using only their own operational earnings.

Route B would apply to activities that are similar in function to those carried out by a market infrastructure institution but undertaken through an investee company regulated by another financial-sector regulator in India. For such activities to qualify, SEBI must have previously approved the activity and its nature must remain unchanged, even if it is not directly an activity in the securities market.

The proposed framework sets explicit financial caps on the use of the automatic route. Aggregate deployment of funds by a market infrastructure institution and its subsidiaries in a financial year would be limited to the lower of 5 per cent of the institution’s net worth as of March 31 of the preceding financial year and the minimum net worth requirement prescribed by SEBI.

In addition, the institution’s net worth after any such deployment must remain at least 1.5 times the prescribed minimum net worth. Where the latest audited financial statements have not yet been adopted, the proposal provides for a provisional mechanism to calculate net worth to ensure compliance with these thresholds.

Alongside the financial limits, the proposal introduces several governance safeguards. Each new activity or deployment of funds under the automatic route would require prior approval from the governing board of the market infrastructure institution, which must ensure that there is no conflict of interest with the institution’s core functions or its role as a first-level regulator.

Institutions must ensure that investee companies, their directors and shareholders meet ongoing fit-and-proper criteria, and that any brand or resource sharing is conducted at arm’s length with appropriate ring-fencing. They are also required to adopt board-approved standard operating procedures and submit half-yearly reports to SEBI within 30 days of the end of each half-year, detailing activities and investments undertaken through the automatic route.

Under the existing framework, market infrastructure institutions generally need prior SEBI approval for any non-treasury activity involving deployment of funds, regardless of the size, nature or risk of the activity. This includes smaller investments that directly support market operations, which currently face the same approval process as larger, unrelated ventures.

The proposed automatic route seeks to rationalise these requirements by distinguishing between activities that are related or incidental to an institution’s core functions and those that are unrelated. Activities that do not qualify under Routes A or B would continue to require prior SEBI approval, maintaining regulatory oversight for higher-risk or non-core initiatives while streamlining approvals for eligible core-linked activities.