The Securities and Exchange Board of India (SEBI) is planning safeguards to prevent the misuse of brokers’ trading terminals and exploring a graded compliance framework for stock market intermediaries.
Under the move, the measures are aimed at strengthening market integrity, improving oversight and addressing risks arising from the growing use of technology in trading.
The plans were announced by SEBI Chairman Tuhin Kanta Pandey. Under the proposed graded compliance system, stockbrokers could face different regulatory requirements depending on their size, client exposure and reliance on technology.
The regulator is also working on safeguards against terminal misuse and reviewing other market mechanisms to improve liquidity and price discovery.
“We are developing a framework to put in place safeguards to prevent misuse of trading terminals,” Pandey said.
How proposed curbs protect retail investors:
For investors, the main benefit could be stronger oversight of trading activity and improved accountability among brokers.
Better identification of trading terminals could help regulators investigate suspected violations, including the unauthorised use of accounts and potential circumvention of margin requirements.
Misuse of trading infrastructure can also create risks for market integrity. If trading activity is conducted without adequate disclosure or oversight, it can complicate the monitoring of market risks and compliance. Stronger controls could help regulators identify such practices more effectively.
However, the proposed framework does not guarantee that investors will avoid losses, nor does it eliminate market manipulation or fraud. Its effectiveness will depend on the final rules, their implementation and the enforcement action taken against violations.
Trading terminal misuse:
A trading terminal is a system through which a broker or an authorised dealer places orders on a stock exchange. The concern arises when a broker’s proprietary trading account or terminal is used by unauthorised third parties to execute trades, potentially bypassing regulatory requirements on margins, disclosures and the identification of the person actually trading.
Investigations have previously flagged instances in which some brokers allegedly allowed individual traders to use their proprietary trading accounts in exchange for fees or a share of profits.
SEBI is also exploring a graded compliance framework for stockbrokers. Under this approach, regulatory requirements would reflect a broker’s size, client exposure and dependence on technology, rather than applying an identical compliance burden to every intermediary.
For investors, the objective is to ensure that brokers handling larger volumes of client activity or operating more complex technology systems have appropriate safeguards and oversight. Smaller intermediaries could benefit from requirements that are proportionate to their scale, although the precise categories and obligations have not yet been specified.