SEBI has published a consultation paper to update the Stock Brokers Regulations 1992. The aim is to simplify rules, reduce compliance costs for brokers, and improve investor protection. Here’s what the proposal covers:
1. New definitions for clarity
- Algorithmic trading means placing orders using an automated program or logic.
- Execution Only Platform means an online platform where you can buy, redeem, or switch mutual fund direct plans.
- Proprietary trading means a broker trading for itself, not for clients.
- Proprietary trading member means a broker who only does proprietary trades.
- Updated definitions for clearing member, self-clearing member, and professional clearing member to remove old commodity market references.
A clearing member is now defined as a person with clearing and settlement rights in a recognised clearing corporation. A self-clearing member is a broker who clears and settles trades for themselves or their clients only. A professional clearing member has clearing and settlement rights but no trading rights as a stockbroker in the same exchange segment.
2. Governance and eligibility changes
- If a broker is a company, at least one director must live in India for 182 days in a year.
- If any important details given during registration change, they must be reported to the exchange and other market bodies.
- For a change in control, the request will go through one exchange, which will then inform the rest.
3. Separate Business Units
- Brokers can run other SEBI-approved activities under a separate division, such as NDS OM, which is the Negotiated Dealing System Order Matching platform used for trading in government securities, or GIFT IFSC operations, which allow participation in the International Financial Services Centre in Gujarat.
4. Qualified Stock Brokers
To be called a QSB, SEBI will look at:
- Number of active clients.
- Total assets clients hold with the broker.
- Trading volumes.
- Margin money collected from clients.
- Proprietary trades done by the broker.
- Older measures like grievance redressal score and compliance score will not be used anymore.
5. Power to relax rules
- SEBI can make exceptions to its rules in special cases, such as when a rule is outdated, not relevant, or causes unnecessary problems for investors. Brokers can request such an exception, and SEBI can keep the request confidential for up to 180 days.
6. Net worth rules
- SEBI will no longer keep a fixed method for calculating variable net worth in the regulations.
- The method will be explained separately in circulars so it can be updated when needed.
7. Clear obligations for all brokers
Protecting client funds and securities
- Always keep client funds ready for withdrawal.
- Keep client money and securities separate from the broker’s own.
- Use client money only for the purpose it was given.
Risk management and internal control
- Brokers must verify client identity and details through proper KYC.
- They should explain the risks of trading to clients before any trades are made.
- They must record and safely store proof of every order a client places.
- They need to regularly review the work of authorised persons and branch offices.
- All client information must be kept confidential, unless it has to be shared under the law.
Technology and systems
- Have strong cybersecurity measures.
- Get systems tested and audited regularly.
- Be prepared to prevent and handle technical glitches.
- Follow SEBI’s rules for using SaaS platforms, ensuring compliance with data storage, access control, and security requirements.
General obligations
- Brokers must stay enrolled on SEBI’s online dispute resolution platform to handle investor complaints.
- They need to follow SEBI’s guidelines for how they advertise and how they outsource work.
- They must also complete any additional audits that SEBI or the exchanges ask for.
8. Investor grievance redressal
- Brokers must solve client complaints within 21 calendar days.
9. Activities not allowed for brokers
- Brokers cannot run investment schemes or plans that promise fixed or guaranteed returns unless they are approved by SEBI.
- They must not take part in any activity that is banned under the Securities Contracts Regulation Rules.
- They are not allowed to accept cash from clients, whether in person or through cash deposits into the broker’s bank account.
10. Inspections
- Stock exchanges, clearing corporations, and depositories can check a broker’s records and operations according to their own rules.
- SEBI can carry out inspections together with these bodies, so the broker does not face multiple separate checks for the same matter.
11. Recordkeeping made easier
- Brokers can now store all required records in electronic form.
- They no longer need to keep paper copies of contract notes or registers for physical securities.
- They must inform the exchanges about the location where these records are maintained.
12. Code of Conduct changes
- If brokers give investment advice as part of their broking service, they must follow SEBI’s Investment Adviser rules.
- If they or their employees give public recommendations, they must be registered as Research Analysts.
- Removed old rules about how brokers in the same exchange deal with each other.
13. Fee schedule updates
- Removed old fee provisions related to sub brokers, as this category has been phased out.
- It has also removed outdated year-specific timelines and simplified the way broker fees are described and applied.
Public comments are open until September 3, 2025. You can read the full paper and share your views here.