Introduction
Indian securities regulation is undergoing its most significant transformation since the post-Harshad Mehta era, not through a single sweeping statute, but through a carefully sequenced set of regulatory upgrades, judicial recalibrations, and technology-driven oversight mechanisms. The period from mid-2024 to early-2025 marks a decisive and sophisticated recalibration of the market-governance architecture.
SEBI's actions across PFUTP reforms, insider-trading redesigns, AMC governance obligations, and the first complete framework for retail algorithmic trading, reveal a regulator that is anticipating the structural shape of a marketplace that is now predominantly digital, retail-heavy, and algorithmically mediated, designing for structural risks before they manifest at scale.
A Market in Transition: What Triggered SEBI's Modernisation
The Indian securities market of 2025 is fundamentally different from the ecosystem the 2003 PFUTP Regulations or the 2015 PIT Regulations were drafted for. Retail investors now account for nearly 45–50% of daily equity turnover, algorithmic strategies dominate intraday activity, and market sentiment is increasingly shaped by digital influencers, such as financial YouTubers, rather than traditional research channels.
This new reality became starkly visible in cases like Sadhna Broadcast, where digitally distributed promotional videos, timed with coordinated trading, produced a classic pump-and-dump pattern through modern means. SEBI's interim findings highlighted a new architecture of abuse: "digital manipulation ecosystems" networks of promoters, content creators, and traders operating outside classical definitions of investment advice or research analysis.
Judicial developments added further impetus. The Supreme Court's decision in SEBI v. Abhijit Rajan (2022) fundamentally re-shaped insider-trading jurisprudence by repudiating the long-assumed presumption that mere possession of UPSI automatically implies guilt. The Court instead required a careful, nuanced inquiry into motive, context, and economic rationale, clarifying that trades executed during UPSI possession may be legitimate if they stem from a pre-existing, non-manipulative intent or purpose.
High Courts also echoed this theme, repeatedly insisting on procedural clarity, named authority, and auditability in SEBI actions, particularly where system-generated notices or algorithmic surveillance triggers lacked identifiable human oversight and traceability. The market had clearly outgrown the regulatory assumptions of the previous decade.
Rebuilding the PFUTP Framework: The 2024 Shift to Microstructural Abuse
The June 2024 amendments to the PFUTP Regulations mark a defining pivot. The amended framework moves beyond the classical definition of manipulation based on trades executed (wash trades, circular schemes) to embrace microstructural abuse, where intent manifests not in executed trades but in order-book behaviour.
This aligns with SEBI's long-standing enforcement legacy, established during the early-2000s operator cases (including the Ketan Parekh network), which emphasized the artificiality of price or volume as the core indicator of market abuse.
The 2024 regime updates this doctrine for the high-frequency era, focusing on:
- Order-layering and spoofing (a form of algorithmic deception).
- High-velocity order placements and cancellations.
- Artificial order-book imbalances and algorithmically generated misleading depth.
SEBI’s orientation is now grounded in microstructural analytics: velocity, cancellations, and order imbalance now carry as much evidentiary weight as traditional transactional footprints. This reflects a regulator comfortable with forensic technology and behavioural signatures, positioning India among jurisdictions that consider algorithmic intent central to market integrity.
Insider Trading Re-Architected: A Post-Rajan Enforcement Philosophy
The insider-trading framework is undergoing its most conceptual shift since 2015, shifting away from a possession-based presumption toward a purpose-based, evidence-driven model following the Abhijit Rajan decision. The 2024 consultation papers illustrate this transformation:
- UPSI Definition Modernised: SEBI is considering a multi-factor test for materiality, evaluating sensitivity not merely by its corporate nature but by its expected market impact, temporal proximity, and digital pathways of dissemination.
- Connected Persons Reframed: The network of “connected persons” is expanded to reflect contemporary organisational complexity, now explicitly including digital consultants, technology vendors, cloud-service partners, offshore group entities, and influencers or promotional collaborators with access to strategic content.
- Documentation & Digital Traceability: Future enforcement will likely hinge less on timing presumptions and more on internal digital architecture, requiring organisations to maintain:
- Detailed trade-rationale documentation.
- Data-access and communication logs.
- Algorithmic or automated instruction records (where applicable).
The new framework emphasizes access architecture, communication flows, and decision-making analytics inside organisations.
Institutional Integrity & Flow Controls: Strengthening AMC Governance
The 2024 AMC governance circular shifts compliance from procedural certifications to data-driven fiduciary responsibility and surveillance. Recognizing that information asymmetry often arises within institutions (as seen in historical front-running cases involving PMS desks and brokerage intermediaries), the new framework mandates:
- Strict data-segregation and access controls.
- Automated surveillance of dealer behaviour.
- Audit trails for every internal trade instruction.
- Escalation mechanisms with named accountability.
This embeds the recognition that governance failures often precede market abuse, aligning India with global asset-management standards (e.g., SEC’s access-person surveillance rules).
Algorithmic Trading Comes to the Core: The February 2025 Framework
The February 2025 circular introduces India’s first comprehensive regulatory regime for retail algorithmic trading, acknowledging that algorithms, not humans, now initiate a substantial proportion of trades on exchanges and mobile-based APIs. SEBI's framework integrates investor protection with microstructural integrity.
Key elements include:
- Mandatory algorithm testing and certification.
- Behavioural and decision logs, alongside version control and change-tracking.
- Platform liability for unverified or untested algos.
- Risk controls for runaway or malfunctioning strategies.
This mirrors global trends in the EU (MiFID II), US (Market Access Rule), and UK, signaling that India views algorithms as market actors requiring oversight, not merely tools. The framework ensures that algorithmic usage is transparent, certifiable, and occurs only through accountable systems.
Conclusion: India Has Crossed a Regulatory Threshold
SEBI's 2024–2025 reforms signify the emergence of a new intellectual architecture for market integrity, one grounded in data science, behavioural analytics, and judicial alignment. The shift is structural: earlier regimes focused on transactions, but today’s framework focuses on systems; earlier norms relied on presumptions, but today’s enforcement relies on patterns and documented rationale; and where compliance was largely procedural, today it is technological, dynamic, and evidentiary.
India is crafting a uniquely sophisticated, bespoke model suited to a digital-first emerging economy with deep retail participation and expanding algorithmic liquidity. This integrated regulatory approach is not a response to current market problems, it is the foundation for a modern, resilient, and globally relevant capital-market architecture that will likely define India’s securities ecosystem for the next decade.