Stockbroker rules' revamp likely to broaden cross-regulator scope

Separate business units, sandbox timelines part of proposed changes

The market regulator’s overhaul of the 30-year-old stockbroker regulations may bring broader relaxations — beyond those proposed in the consultation paper — with the Securities and Exchange Board of India (Sebi) likely to provide flexibility on several fronts, including allowing brokers to carry out activities under the framework of other financial regulators.

 

Sebi approved the review of the stockbroker regulations at its December 2025 board meeting, reducing the length of the regulations from 59 pages to 29 pages. The final regulations and notification are awaited.

 

While Sebi floated the consultation paper in August 2025, it has since incorporated several industry suggestions.

 

Board meeting documents state: “An enabling provision is proposed to be added to permit stockbrokers to carry out activities under the regulatory framework of other financial regulators or any other specified authority, which may be undertaken through a separate business unit (SBU).”

 

Sebi had earlier issued a circular on SBUs specifically to allow stockbrokers to operate in the International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT City).

 

The final regulations may also modify the definition of proprietary trading to clarify the distinction between own trading and trading on behalf of clients. In addition, the definition of “employees” may be removed to allow the term to carry its natural meaning.

 

Eligibility parameters for qualification as a qualified stockbroker are also being revised, with compliance score and grievance redress score proposed to be removed as criteria.

 

Further, for exemptions from the enforcement of regulations in special cases, Sebi may remove the 12-month time limit and grant brokers flexibility to test products where additional time is required.

 

In the consultation paper, the regulator had proposed a limited extension of up to 12 months for testing new products, processes, services, and business models in the live environment of the regulatory sandbox.

 

Another change under consideration is the interest rate applicable in cases of default in payment of fees by a stockbroker or clearing member. This may be revised from the existing 15 per cent per annum to 1 per cent for every month or part thereof, in line with the Income-Tax Act.

 

Accountability for enforcing institutional mechanisms for the prevention and detection of fraud or market abuse may also be fixed on the board of directors and the audit committee.

 

The time period for reporting suspicious transactions under the institutional mechanism may be aligned with the Prevention of Money Laundering Act, 2002.

 

Sebi may also streamline the exit process for stockbrokers through surrender of registration, which is currently handled administratively.

 

The revamped regulations aim to reduce duplication and simplify language. 

New rulebook

 

• Final norms may offer more relaxations than proposed in the consultation paper, considering industry suggestions
• Definition tweaks planned; QSB eligibility criteria may be modified
• Interest rate for default in payment of fee by may be modified from the 15% annum to 1% for every month
• Time cap for regulatory sandbox exemptions may be removed