The Securities and Exchange Board of India on Wednesday proposed a comprehensive rewrite of its 30-year-old Stock Brokers Regulations to simplify compliance and align the rules with today’s tech-driven markets. The capital markets regulator has invited public comments until 3 September.
The draft regulation, meant to replace the 1992 framework, consolidates years of circulars into the main regulations and harmonizes provisions with newer laws like the Companies Act, 2013.
The 1992 regulations were built for a market of physical paperwork, slower settlements, and fewer retail participants. Sebi’s working group recommended a clearer, streamlined framework that reflects electronic trading, rapid settlement cycles and the scale of modern retail investing.
This proposal is in line with the Sebi chairman Tuhin Kanta Pandey’s emphasis on optimizing regulations. The Association of National Exchanges Members of India (ANMI) informed Mint that it is reviewing the proposals and will send in its comments to Sebi in due course of time.
In its paper, Sebi has introduced formal definitions for key participants and practices, such as algorithmic trading, execution-only platforms for direct mutual fund transactions and proprietary trading, to keep the rules technology-neutral.
Compliance in the digital era
The consultation paper states that record-keeping can be done in electronic form across the board, acknowledging the end of physical share delivery and easing archival burdens.
It suggested that stock brokers can route key intimations and filings through exchanges and outdated registers tied to broker-to-broker dealings within the same exchange will be eliminated.
The index and forms of the regulations have also been cleaned up to remove the defunct sub-broker category and duplicative disclosures, with the “fit and proper” declarations folded into application forms.
Tighter guardrails
Sebi has proposed that brokerages that are structured as companies must have at least one designated director resident in India for 182 days in a financial year to anchor accountability. Additionally, material changes in information provided at registration would need prompt intimation through the stock exchanges where the broker is a member.
To be clear, Sebi proposed that any change in control of a brokerage will require prior Board approval, routed through one of the stock exchanges where the broker is a member.
Legal experts who represent brokers said this framework centralizes the approval process, reduces procedural ambiguity and strengthens regulatory supervision over broker governance.
“This centralized approval framework enhances supervisory clarity and investor protection by tightening governance around ownership transitions,” said Ketan Mukhija, senior partner at Burgeon Law.
Others said that informing about change of control to the Board and exchanges is an important change, as the information will protect the clients of the broking companies. “The intent is to align the procedure, rules and regulations for a transparent environment. Information regarding any material change from information already submitted at the time of registration will have to be submitted to the Board as well,” said Nirali Mehta, partner at Mindspright Legal.
The draft codifies core duties that had been set out through circulars. Those include strict segregation and upstreaming of client funds and collateral, robust KYC and order evidence, confidentiality of client data, and participation in Sebi’s Online Dispute Resolution platform, among others.
Higher bar for big brokers
Sebi has specified that the “Qualified Stock Broker” (QSB) tag will be assigned using five measurable parameters: active clients, client assets, trading volumes, end-of-day client margin obligations, and proprietary volumes.
The regulator has proposed dropping qualitative scores on compliance and grievance redressal as entry criteria.
Along with the regulator, the exchanges, clearing corporations, and depositories would now have explicit powers to conduct inspections, including joint inspections to avoid duplication.
Sebi also proposed a calibrated power to relax strict enforcement in limited circumstances, such as technical or procedural hardship, sector irrelevance, or broader factors beyond a class of persons’ control, subject to reasoned orders.
Aiming to modernize fee schedules, the regulator proposed removing archaic references from the 1990s and aligning collection through exchanges and recognized infrastructures, with the provision for interest levy for delays.
