SEBI Provides Relief to Small Stock Brokers – Regulatory Rules Revised

The market regulator SEBI has taken a key decision providing relief to stock brokers with a smaller client base. SEBI has announced relaxations in the regulatory framework applicable when technical glitches occur in brokers’ electronic trading systems. Along with simplifying compliance requirements and rationalising penalties, the regulator has exempted smaller brokers from certain regulations. Under the revised framework, brokers will not be held responsible for technical failures that are beyond their control. SEBI stated that this move aims to make business operations easier for market intermediaries and has also revised eligibility criteria to grant exemptions to small brokers with limited operations and lower dependence on technology.

These regulations will now apply only to brokers having more than 10,000 registered clients. Since the number of brokers with such a large client base is relatively limited nationwide, nearly 60 percent of brokers are expected to be exempted from these compliance requirements. Exemptions will also cover failures arising outside the brokers’ trading systems and incidents that have either no direct impact or only minimal impact on trading activities.

In case of any technical incident, brokers must inform the stock exchanges and their clients within two hours. The exchanges will publish such information on their websites. Brokers are required to notify clients through trading apps, websites, SMS, emails, and pop-up alerts. A preliminary report must be submitted to the exchange by T+1 day, with extensions available if the following day is a holiday. A detailed root-cause analysis report must be filed within 14 days through the Samuhik Prativedan Manch portal. SEBI has also rationalised financial penalties based on the severity and frequency of incidents. The revised norms have come into effect with immediate effect.