SEBI’s new surveillance measures: What it means for traders

In 2025, SEBI has rolled out a series of surveillance and regulatory measures, fundamentally altering how you interact with the market. These changes aren’t just tweaks; they’re a response to the explosive growth in retail participation, a surge in algorithmic trading, and the increasing complexity of financial products. For you, the trader, these measures mean new hurdles, new protections, and, if you’re smart about it, new opportunities.

The rationale behind SEBI’s surveillance overhaul

You might wonder - why is SEBI tightening the screws now? The answer lies in the numbers and the risks. Retail traders on Dalal Street have nearly doubled in just two years, jumping from 5.1 million in FY22 to 9.6 million in FY24. This influx has led to concerns that household savings are being funnelled into speculative bets, especially in the derivatives market, which has started to resemble a high-stakes casino rather than a platform for prudent investment.

SEBI’s new surveillance measures are designed to enhance market integrity and transparency. The regulator aims to protect retail investors from excessive risk and manipulation, while ensuring that only those with adequate capital and knowledge participate in high-risk segments. SEBI isn’t just reacting to headlines; it’s responding to real shifts in market behaviour and risk profiles. For you, this means a more regulated environment, but also one that aims to be fairer and more stable.

Key surveillance measures introduced in 2025

Enhanced Surveillance Measures (ESM) and Graded Surveillance Measures (GSM) SEBI’s surveillance arsenal now includes a multi-layered framework to monitor and control volatility, especially in small-cap and illiquid stocks. The Enhanced Surveillance Measure (ESM) targets companies with a market cap below Rs. 500 crores and operates in two stages. In Stage I, affected stocks are subject to a 100% margin requirement, Trade-to-Trade (T2T) settlement, and a price band of 5% or 2%.

The Graded Surveillance Measure (GSM) is designed for stocks showing abnormal price movement or volatility. Higher stages, such as GSM Stage III, restrict trading to once a week and require an Additional Surveillance Deposit (ASD) equal to 100% of the trade value from the buyer. These measures are dynamic, meaning stocks can be moved in and out of these categories based on ongoing surveillance.

The Additional Surveillance Measure (ASM) applies to stocks with surveillance concerns based on objective parameters such as price volatility. Stocks under ASM may face restrictions like reduced price bands or periodic call auctions.

If you hold or trade in small-cap or volatile stocks, you need to be ready for sudden changes in trading conditions, such as tighter price bands, higher margin requirements, or restricted trading days. Intraday strategies are off the table for stocks under T2T settlement

New F&O rules to curb excessive speculation

SEBI’s changes to the Futures & Options (F&O) segment are some of the most impactful for active traders. Now, option buyers must pay the full premium at the time of order placement, rather than at the end of the trading day. This increases the capital required for speculative trades and reduces the risk of over-leveraging. Additionally, margin offsets for calendar spreads are no longer available on expiry day, making it costlier to hold speculative positions without adequate funds.

Open positions are now monitored throughout the trading day, not just at the close. This prevents you from taking excessive risks intraday and helps avoid substantial losses. The minimum contract size for index derivatives has been increased, making these instruments less accessible for small traders and reducing the risk of outsized exposure. Only one weekly index expiry per exchange is now allowed, curbing the frequency of speculative opportunities and reducing volatility.

Algorithmic trading

If you use or plan to use algorithmic trading, SEBI’s new framework directly affects your operations. API-based trading for retail traders is now officially recognised and regulated. If your trading frequency exceeds certain limits, you must register your algorithms with the exchange. Security is tighter: static IPs and unique trade identifiers are mandatory to prevent unauthorised access. You can only share your trading algorithms with family members, curbing the rise of unregulated advisory services. Black-box algos, where the logic is hidden, require a Research Analyst license and strict reporting.

How SEBI monitors and enforces these measures

SEBI’s surveillance isn’t just about setting rules—it’s about active monitoring and swift enforcement. Exchanges and brokers are required to track trades using unique order identifiers and periodic reporting. Violations can lead to account suspension, monetary penalties, or even blacklisting from exchanges. For algo trading, brokers must ensure all orders comply with regulations, and exchanges monitor execution speeds to detect violations. In the derivatives segment, clearing corporations track and penalize breaches of position limits or margin requirements.

For you, this means that compliance is no longer optional or easily circumvented. The monitoring is granular, and the penalties are real.

Impact on trading strategies

With these new measures, you can’t afford to trade the way you did in the past. With higher upfront margins and premiums, you need to deploy your capital more strategically and avoid spreading yourself too thin across multiple speculative positions. You’ll need to build strategies that prioritise risk management and position sizing.

Surveillance categories can change quickly, so it’s important to monitor announcements from exchanges and your broker. Be ready to adjust your trading plan if a stock you hold moves into a higher surveillance stage. If you use algo trading, ensure your systems are compliant and registered if required.

With restrictions on frequent expiry and speculative positions, long-term strategies may offer better risk-adjusted returns.

Conclusion

You’re trading in an era where SEBI’s surveillance measures are not just background noise—they’re a central part of your trading environment. The days of unchecked speculation and easy leverage are fading. Instead, you’re faced with a market that demands more capital, more discipline, and more transparency.

But this isn’t just about restrictions. The new rules also open up opportunities for those who are prepared. If you’re willing to adapt—by focusing on risk management, leveraging technology responsibly, and staying informed—you can still thrive. The expansion of T+0 settlement, for example, gives you faster access to funds and the ability to respond quickly to market moves. Meanwhile, the formalisation of retail algo trading means a safer, more predictable landscape for those who want to automate their strategies.