The Securities and Exchange Board of India (Sebi) has proposed allowing direct market access (DMA) for all investors—a mechanism currently open only to institutional investors. According to the consultation paper released on Monday, the market regulator noted that advances in technology and risk management frameworks have made it possible to consider DMA access for a wider pool of market participants. The proposal suggests removing the current restriction that DMA is available only for institutional clients, as part of SEBI's 'ease of doing business' initiative aimed at simplifying and consolidating regulatory requirements. This would allow all investors to access exchange trading systems directly through brokers, subject to prescribed risk management and operational safeguards.
In May 2023, Sebi allowed DMA to registered foreign portfolio investors (FPIs) for participating in exchange-traded commodity derivatives (ETCDs). As reported in the consultation paper, the regulator has now proposed extending DMA for ETCDs to other investor categories. The proposal follows requests from market infrastructure institutions (MIIs) to harmonise the provisions of DMA for the commodity derivatives segment. The latest development includes removing the reference to foreign portfolio investors (FPIs) from the ETCDs segment, allowing all eligible investors to use this facility. Exchanges will be allowed to specify from time to time the categories of investors to whom the DMA facility can be extended for ETCDs, as is the present requirement for other segments.
In the NSE cash market segment, DMA gained traction with its share rising by 91 basis points month-on-month to 4.7 per cent, marking a nine-month high in May. According to the consultation paper, this coincided with an increase in foreign investor participation. In comparison, mobile, colocation, and internet-based trading (IBT) witnessed marginal moderation. Colocation had a share of 43.4 per cent, while mobile trading touched a five-year high of 22.9 per cent in FY27, up to May 2026. The increase in DMA activity came alongside stronger participation from foreign investors, suggesting growing demand for direct trading mechanisms.
The consultation paper emphasizes that exchanges have the flexibility to extend DMA facility to other client categories, as suggested by MIIs. As reported in the consultation document, SEBI stated that it is understood that exchanges have the flexibility to extend DMA facility to other client categories, subject to risk management checks applicable for respective categories. The regulator stressed that the proposal aims to provide clarity and harmonise DMA provisions across different market segments. The DMA proposal is part of a larger review of technology-related regulations for stock exchanges, clearing corporations, and depositories, with SEBI proposing to merge tech provisions for securities and commodity derivatives exchanges into a single framework.
As part of the rationalization exercise, SEBI has proposed removing several provisions it considers outdated or already covered under other regulatory frameworks. This includes rules governing trading through Wireless Application Protocol (WAP), an early-generation mobile internet technology that has been rendered obsolete by advances in smartphone-based communication. The draft also updates cybersecurity requirements by replacing specific encryption standards with a broader requirement for exchanges to adopt strong and up-to-date cryptographic protocols. It proposes mandatory two-factor authentication for system access, enhanced firewall practices like port whitelisting and network segmentation, and the removal of cybersecurity provisions that have been superseded by SEBI's Cybersecurity and Cyber Resilience Framework. The consultation process will now allow stakeholders to provide feedback before any final regulatory changes are considered.
