SEBI Plans Direct API System For Institutional Trade Processing

The Securities and Exchange Board of India (SEBI) has proposed sweeping changes to the system used for processing institutional stock market trades, signalling one of the biggest operational overhauls in recent years.

In a consultation paper released on Tuesday, the regulator said it wants to replace the current centralised Straight Through Processing (STP) structure with a direct application programming interface (API)-based framework.

The proposal comes after SEBI found that nearly 95% to 99% of STP traffic was being routed through a single service provider, increasing the risk of operational disruption if that entity faces technical issues.

The regulator believes the new model can reduce delays in trade communication, lower transmission costs, and improve the overall resilience of institutional trade processing. SEBI also said the transition is unlikely to require major changes for brokers, custodians, or institutional investors because the shift will mainly happen at the infrastructure level.

Why Is SEBI Changing The STP Framework?

STP is the backend mechanism that helps brokers, custodians, and institutional investors exchange trade-related information electronically. It is widely used for processing electronic contract notes and settlement instructions in institutional trades.

Right now, communication between different STP service providers moves through a central hub before reaching the final participant. SEBI said this extra layer increases latency and operational expenses. The regulator also flagged the current system as vulnerable because a large portion of the traffic depends on one provider.

Under the proposed setup, service providers would directly exchange information using Application Programming Interfaces, commonly known as APIs. This would remove the need for the centralised hub entirely.

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What Could Change For Market Participants?

As per SEBI, the new framework could bring improvements in terms of scalability and enable the market to deal with the increased volume of institutional transactions in a more efficient manner. In addition, SEBI has proposed that there could be an option for API based communication for users who are on the same service provider platform.

Public feedback on the proposal is sought by SEBI until 9 June 2026.

Sources:

ET Legal World

Moneycontrol