Informist, Wednesday, Aug. 13, 2025

NEW DELHI – The Securities and Exchange Board of India has proposed a slew of changes to its regulations governing stock brokers in order to reduce their compliance burden, omit redundant regulations, and incorporate tweaks needed due to changes in market practices and the regulatory environment, it said in a consultation paper Wednesday.

The market regulator has proposed the definition of 'algorithmic trading' for stock brokers in the Securities and Exchange Board of India (Stock Broker) Regulations, 1992. Algorithmic trading is a process of executing orders placed by stock brokers using automated execution logic.

Amid a rise in algorithmic trading by retail investors, SEBI in February had issued a regulatory framework to facilitate the safer participation of retail investors in algorithmic trading through brokers. This mode of trading formed around 13% of overall cash trades in 2024-25 (Apr-Mar) on the BSE and National Stock Exchange, according to the SEBI's annual report for FY25.

SEBI has also proposed the inclusion of the definition of 'execution-only platform' into the Act. The regulator had amended SEBI (Stock Brokers) (Amendment) Regulations, 2023 to highlight separate requirements of the execution-only platform segment to maintain books of account, records and documents, and other requirements related to fees, deposits, variable net worth, among others.

Yet the current regulations do not have a definition for the segment. SEBI proposed to define an 'execution-only platform' as any digital or online platform which facilitates transactions such as subscription, redemption, and switch transactions in mutual funds' direct plans.

The regulator also proposed to redefine 'proprietary trading' as it sought to clarify on the demarcation between its own trading and trading by stock brokers on behalf of their clients. Proprietary trades are those executed in any segment of the recognised stock exchange by a stockbroker in its account.

Currently, SEBI defines a proprietary trading member as a stock broker who trades in the debt segment of the recognised stock exchange, exclusively on its own account or as permitted by its sectoral regulator. The regulator has proposed to amend the definition of these brokers as it covers only the debt segment. The new definition of proprietary trading member is proposed to be "a stock broker whose trades are exclusively proprietary trades," SEBI said.

SEBI has also proposed to redefine the term 'clearing member', as per its consultation paper. A clearing member is currently defined as "a person with clearing and settlement rights in any recognised clearing corporation and on a commodity derivatives exchange". Following the introduction of mandatory clearing and settlement through Clearing Corp. of India in the commodities segment as well as the merger of the Forwards Market Commission with SEBI, the regulator wants to remove the redundant part from the definition. Thus, a clearing member is proposed to be defined only as "a person having clearing and settlement rights in any recognised clearing corporation," SEBI said.

Similarly, the definition of a self-clearing member is proposed to be amended to "a member of a clearing corporation who is also a stock broker and clears and settles trades on its own account or on account of its clients only," SEBI said.

To allow stock brokers to carry out other activities, such as accessing the Negotiated Dealing System-Order Matching (NDS-OM) platform to trade in government securities and to engage in securities market-related activities in the Gujarat International Finance Tec-City International Financial Services Centre, or GIFT IFSC, under a separate business unit, the SEBI has proposed to have an enabling provision in place in its regulations.

The regulator has proposed to insert a provision in the norms for stock brokers to allow them to carry on any activity under the respective guidelines of a financial sector regulator. "In such a case, transactions made by a stock broker in any other platform under the guidelines of the respective regulator or authority shall be under the purview of the said regulator or authority," SEBI said.

Stock brokers are designated as qualified stock brokers by the regulator based on seven parameters. These include brokers' total number of active clients, total assets of clients available with the stock broker, their trading volumes, and end-of-day margin obligations of all their clients, their proprietary trading volumes, board-defined compliance score, and board-defined grievance redressal score. The market regulator has proposed removing the last two parameters as qualifying criteria to designate a stock broker as a qualified stock broker.

SEBI has proposed the removal of definition of small investors, given their irrelevance today, it said. Small investors are those who carry out cash transactions for a market value of up to INR 50,000 on any given day.

The market regulator has also proposed the insertion of activities restricted and prohibited for stock brokers in its regulations. SEBI has proposed that brokers shall refrain from engaging in activities, issuing schemes of fixed and periodic payments, which are not permitted under existing norms. SEBI has also proposed that brokers shall refrain from accepting cash from clients directly or through cash deposit into their own bank accounts. End

Reported by Anand JC

Edited by Tanima Banerjee

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.