SEBI rationalises broker penalties, simplifies exchange rules

Tuhin Kanta Pandey, Chairman of Securities and Exchange Board of India
| Photo Credit:
DHIRAJ SINGH

In a major step towards easing compliance and improving market efficiency, the Securities and Exchange Board of India (SEBI) has finalised key reforms for stockbrokers and stock exchanges.

Speaking to businessline, SEBI Chairman Tuhin Kanta Pandey said the regulator had undertaken “detailed consultations” before approving two major initiatives for brokers. These include rationalisation and standardisation of penalties, and a phased implementation of a technology-based common reporting system.

“If a violation happens, exchanges are levying different types of penalty, which is actually not fair. Secondly, various stock exchanges are levying independently. We have brought them together and rationalised. There will be uniform penalty structure across exchanges, i.e. penalty for a violation will be same across stock exchanges. Then to avoid double jeopardy, penalty will be levied by only one exchange, that is lead exchange,” Pandey explained.

Under the revised framework, the term penalty will be replaced with financial disincentives for minor procedural violations to remove any stigma for stockbrokers. SEBI has reviewed 225 penalty items — eliminating redundant penalties for 40 violations and classifying 105 as financial disincentives. Of the remaining 90, 36 penalties have been rationalised, while in seven cases, only an advisory or warning will be issued for first-time lapses. Capping will apply to six categories, 29 will remain unchanged, and 12 new penalties have been added.

“We have approved the new mechanism. Now, exchanges will issue directions to implement it,” Pandey said.

Common Reporting

Stockbrokers registered with multiple exchanges currently submit separate compliance reports to each. To address this, SEBI has rolled out a common reporting portal, to be implemented in two phases, with the National Stock Exchange (NSE) providing the platform.

“Around 800 stockbrokers who have multiple memberships with NSE and other stock exchanges are benefiting from this. The first phase was implemented from August 1, and the second phase would be implemented from October 15,” Pandey said.

Overhaul of Exchange Regulations

For stock exchanges, SEBI plans a chapter-wise overhaul of regulations to consolidate various circulars into a single framework. “All of the master circulars and all of the other side circulars, they will be brought down to one. We are looking at removing all those redundancies which create difficulties,” Pandey noted.

As part of these changes, SEBI has raised the minimum block deal size from ₹10 crore to ₹25 crore and widened the permissible price band for such trades, which are executed through a special trading window on exchanges.

“Chapter-wise changes will continue till March next year and accordingly we will end up in making a major rationalisation work for entire regulations,” Pandey added.