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Time of India
15 hours ago
- Business
- Time of India
Explained: How new rule tweak frees up stock brokers to invest beyond securities
Live Events In a welcome step for the broking industry, the government has amended Rule 8 of the Securities Contracts (Regulation) Rules, 1957 ( SCRR ), providing long-awaited clarity on what does not constitute 'business' for a stockbroker. The amendment addresses a long-standing industry concern around regulatory restrictions that limited brokers from investing their own surplus funds in non-securities 8 of the SCRR lays down the eligibility conditions for a person to act as a stockbroker or a member of a recognised stock exchange . Under sub-rules (1)(f) and (3)(f), brokers are prohibited from engaging in any business other than that of securities, unless such business is carried out without any personal financial liability. This essentially prevented brokers from exposing themselves to financial risks unrelated to their core broking time, the National Stock Exchange and the Bombay Stock Exchange issued circulars that significantly widened the interpretation of 'business' under Rule 8 of the SCRR. These circulars clarified that even passive investments in group companies (subsidiary or associate) engaged in non-securities businesses (such as NBFCs, real estate or insurance) would be treated as 'business' and would be in violation of Rule 8. This interpretation created a regulatory overhang that discouraged brokers from investing their own profits outside the securities practice, brokers were restricted from investing their retained earnings or surplus capital into group ventures operating outside the securities domain, even where such investments posed no financial risk to the broker or its clients. This created a significant operational constraint. If a broker wished to invest in a non-securities business, it first had to route profits to its parent, typically via dividends or buybacks, incurring additional tax liabilities before the funds could be redeployed by the parent. This structure was inefficient and deterred brokers from pursuing legitimate investment opportunities that could enhance their business offerings and these industry concerns, the Ministry of Finance released a consultation paper in September 2024 proposing a more nuanced interpretation of Rule 8. It clarified that the original intent of the restriction was to protect client interests and ensure the financial soundness of the brokers, not to place undue limitations on the use of their own capital. Since stockbrokers are already subject to stringent SEBI regulations aimed at safeguarding client funds, further restricting them from investing in group companies engaged in non-securities businesses under the guise of protecting client funds seemed excessive and position has now been codified through an amendment to Rule 8. It now clarifies that a broker's investment activity will not be treated as 'business', unless it involves client funds, client securities or creates a financial obligation for the broker. This empowers brokers to freely invest their retained earnings and surplus capital in group companies or unrelated ventures, so long as client interests remain unaffected. Brokers can now participate in broader financial services ecosystems such as lending or insurance through subsidiaries, allowing them to diversify revenue streams and build integrated financial this amendment to Rule 8 is now effective and offers much-needed regulatory clarity, it is worth noting that the circulars issued by NSE and BSE interpreting the earlier position have not yet been formally withdrawn. This could create some ambiguity for brokers on how the exchanges will align with the amended Rule 8, particularly given that the validity of the NSE circular had been challenged before the Bombay High Court. Until the exchanges formally update their stance, brokers may continue to face uncertainty in practice despite the regulatory intent to liberalise.(The authors Prashanth Ramdas is Partner and Shivaang Maheshwari is Associate at Khaitan & Co. The views expressed are personal.)
Economic Times
18 hours ago
- Business
- Economic Times
Explained: How new rule tweak frees up stock brokers to invest beyond securities
Government eases investment rules for stockbrokers. Amendment to Securities Contracts Regulation Rules gives clarity. Brokers can now invest surplus funds more freely. Earlier rules restricted investments in non-securities businesses. New rules allow investments unless client funds are involved. This empowers brokers to diversify revenue streams. However, exchange circulars need updating for full clarity. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads In a welcome step for the broking industry, the government has amended Rule 8 of the Securities Contracts (Regulation) Rules, 1957 ( SCRR ), providing long-awaited clarity on what does not constitute 'business' for a stockbroker. The amendment addresses a long-standing industry concern around regulatory restrictions that limited brokers from investing their own surplus funds in non-securities 8 of the SCRR lays down the eligibility conditions for a person to act as a stockbroker or a member of a recognised stock exchange . Under sub-rules (1)(f) and (3)(f), brokers are prohibited from engaging in any business other than that of securities, unless such business is carried out without any personal financial liability. This essentially prevented brokers from exposing themselves to financial risks unrelated to their core broking time, the National Stock Exchange and the Bombay Stock Exchange issued circulars that significantly widened the interpretation of 'business' under Rule 8 of the SCRR. These circulars clarified that even passive investments in group companies (subsidiary or associate) engaged in non-securities businesses (such as NBFCs, real estate or insurance) would be treated as 'business' and would be in violation of Rule 8. This interpretation created a regulatory overhang that discouraged brokers from investing their own profits outside the securities practice, brokers were restricted from investing their retained earnings or surplus capital into group ventures operating outside the securities domain, even where such investments posed no financial risk to the broker or its clients. This created a significant operational constraint. If a broker wished to invest in a non-securities business, it first had to route profits to its parent, typically via dividends or buybacks, incurring additional tax liabilities before the funds could be redeployed by the parent. This structure was inefficient and deterred brokers from pursuing legitimate investment opportunities that could enhance their business offerings and these industry concerns, the Ministry of Finance released a consultation paper in September 2024 proposing a more nuanced interpretation of Rule 8. It clarified that the original intent of the restriction was to protect client interests and ensure the financial soundness of the brokers, not to place undue limitations on the use of their own capital. Since stockbrokers are already subject to stringent SEBI regulations aimed at safeguarding client funds, further restricting them from investing in group companies engaged in non-securities businesses under the guise of protecting client funds seemed excessive and position has now been codified through an amendment to Rule 8. It now clarifies that a broker's investment activity will not be treated as 'business', unless it involves client funds, client securities or creates a financial obligation for the broker. This empowers brokers to freely invest their retained earnings and surplus capital in group companies or unrelated ventures, so long as client interests remain unaffected. Brokers can now participate in broader financial services ecosystems such as lending or insurance through subsidiaries, allowing them to diversify revenue streams and build integrated financial this amendment to Rule 8 is now effective and offers much-needed regulatory clarity, it is worth noting that the circulars issued by NSE and BSE interpreting the earlier position have not yet been formally withdrawn. This could create some ambiguity for brokers on how the exchanges will align with the amended Rule 8, particularly given that the validity of the NSE circular had been challenged before the Bombay High Court. Until the exchanges formally update their stance, brokers may continue to face uncertainty in practice despite the regulatory intent to liberalise.(The authors Prashanth Ramdas is Partner and Shivaang Maheshwari is Associate at Khaitan & Co. The views expressed are personal.)
Business Standard
20-05-2025
- Business
- Business Standard
Amendment in Securities Contracts Rules to offer regulatory clarity to enhance ease of doing business for brokers
The Department of Economic Affairs (DEA), Ministry of Finance, amended Rule 8 of the Securities Contracts (Regulation) Rules (SCRR), 1957. The amendment gives regulatory clarity to enhance ease of doing business for brokers. After taking note of the concerns raised by various stakeholders over certain provisions in the said Rules, the DEA had released a Consultation Paper in September, 2024, inviting stakeholder comments. Given the growth in the scale and interconnectedness of the financial sector and the evolution of nature of business of brokers with time, the DEA felt it necessary to review the appropriateness of safeguards embedded in the Rules so that the intent of the Rules is served without constraining activities of the stakeholders. The amendment has been carried out after due consideration of feedback from the stakeholder and is part of the broader emphasis of the Government to provide regulatory clarity and enhance ease of doing business in the financial sector. It will ensure that market intermediaries continue to support the development of India's capital markets in a transparent and well-regulated manner.
Time of India
19-05-2025
- Business
- Time of India
Brokers can now set up arms, invest in new business
M UMBAI: The govt on Monday amended the Securities Contracts (Regulation) Rule, which will now allow brokers to use their own funds to invest in businesses outside their own area. However, they will not be allowed to use clients' funds to invest in those businesses. They will also not be allowed to borrow funds to invest in other businesses. Brokers said they will now wait for Sebi's rules on the same. Till now, brokers were not allowed to float subsidiaries. The changed rules will allow that, top officials at broking houses said. "Given the growth in the scale and interconnectedness of the financial sector and the evolution of the nature of business of brokers with time, the DEA (Dept of Economic Affairs) felt it necessary to review the appropriateness of safeguards embedded in the rules so that the intent of the rules is served without constraining activities of the stakeholders," the govt said through a release on Monday. Broking house officials feel this amendment to SCRR is an important shift in regulatory approach. Till now, stock brokers were not allowed to make investments in any business other than securities and commodity derivatives, said leading broker Motilal Oswal. "This amendment would now allow stock brokers to make investments in any type of business, provided it is not out of client funds or client securities and also it should not create financial liability on the broker. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like 수천시간을 투자해서 만든 이미지영어 40분 특강 스티븐영어 지금 시작하기 Undo " This change also opens avenues for brokers to make strategic investments. "Stockbrokers have always been allowed to use their own funds for day-to-day operations within the securities and commodities business. This change potentially allows for strategic investments outside these core areas, offering greater capital flexibility," said Pranav Haridasan, MD and CEO, Axis Securities. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
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Business Standard
19-05-2025
- Business
- Business Standard
Govt gives stockbrokers flexibility in group companies' investments
In a major relief to stock brokers, the Ministry of Finance on Monday provided the long-awaited clarification on investments and fund-based activities by a broker under the Securities Contracts (Regulation) Rules (SCRR). The amendment allows more flexibility on investments and opens up more avenues, said brokers. The Rule 8 of SCRR prohibits brokers from engaging in any business other than that of securities or commodity derivatives, except as a broker or agent in any other business but not involving any personal financial liability. The main intent behind the restriction was to prohibit brokers from investing client's money in other businesses and safeguard the client's funds. However, it was noted that the term 'any business' was not clearly defined by the Rule and was subject to interpretation. With the amendments issued on Monday, the government has provided clarity. 'The amendment says that stock brokers can invest from their own net worth or borrowed funds in group companies that are not engaged in securities business, provided the liability is limited to the extent of the investment. It applies to all investments, not only group companies, so it is an excellent amendment,' said Dhiraj Relli, managing director (MD) and chief executive officer (CEO), HDFC Securities. The Department of Economic Affairs (DEA) had undertaken consultations with stakeholders between September and October 2024. In the consultation paper, it was noted that prohibiting investments by a broker, including in group companies, places 'unreasonable fetters' on its ability to use its retained earnings as per its 'commercial prudence'. '..Investments made by a member shall, at all times, not be construed as business except when such investments involve client funds or client securities, or relate to arrangements which are in the nature of creating a financial liability on the broker,' stated the amendment issued on Monday. According to the consultation paper, around 100 brokers at the National Stock Exchange (NSE) and four at the BSE were found to be in non-compliance after the exchanges clarified the list of prohibitions in January 2022. 'Given the growth in the scale and interconnectedness of the financial sector and the evolution of nature of business of brokers with time, the DEA felt it necessary to review the appropriateness of safeguards embedded in the Rules so that the intent of the Rules is served without constraining activities of the stakeholders,' stated the ministry. The norms by Securities and Exchange Board of India (Sebi) governing stock brokers already have prescribed minimum net-worth requirements for brokers. It excludes investments made by them in group companies and considers investments in marketable securities at a discount of 30 per cent.
