Latest news with #StockBrokersRegulations
Mint
4 days ago
- Business
- Mint
What Sebi's proposed broker rule changes mean for algo trading and compliance
Next Story Neha Joshi From algos to qualified stock brokers, the draft cleans up three decades of circulars, hardwires investor safeguards and streamlines compliance. Public comments open till 3 September. Sebi has included definitions of 'algorithmic trading', which is order generated using automated execution logic and 'execution only platform (EOP)', a digital/online platform that facilitates subscription, redemption and switch transactions in direct plans of mutual fund schemes. Gift this article The Securities and Exchange Board of India (Sebi) has issued a consultation paper proposing a ground-up rewrite of the 1992 Stock Brokers Regulations to simplify compliance, codify key circulars, and align the rules with today's tech-driven markets. It has invited public comments until 3 September. The Securities and Exchange Board of India (Sebi) has issued a consultation paper proposing a ground-up rewrite of the 1992 Stock Brokers Regulations to simplify compliance, codify key circulars, and align the rules with today's tech-driven markets. It has invited public comments until 3 September. Mint breaks down what changes most for brokers, investors, and markets. What are the proposed definitions? Sebi has included definitions of 'algorithmic trading', which is order generated using automated execution logic and 'execution only platform (EOP)', a digital/online platform that facilitates subscription, redemption and switch transactions in direct plans of mutual fund schemes. Sebi also deleted the definition of a 'small investor' as the threshold of ₹ 50,000 was considered an outdated classification. Legal experts who advise brokers believe the proposed definitions may be too broad or missing out on spelling out exceptions. Sonam Chandwani, managing partner of KS Legal, said the proposed algorithmic trading definition is so broad that it risks capturing everything from basic order-routing tools to high frequency trading (HFT). 'This approach could subject low-risk participants to disproportionate compliance obligations designed for far more sophisticated and potentially disruptive trading systems." Chandwani said. Also Read | Sebi to reboot 30-year-old broker rules for a tech-first market How will registration and governance change? Sebi's consultation paper has specified that at least one designated director must be resident in India (182+ days per financial year) for broker-companies at registration consideration. It also specified that brokers must intimate Sebi (via an exchange) and other market infrastructure institutions (MIIs) of any 'material change" in registration information, not just change in control. Change-in-control approvals are to be routed through an exchange. Lawyers said the new 'material change" intimation will raise compliance overhead and may trigger disputes unless Sebi/exchanges clearly define scope, timelines, and formats through circulars. 'What is material change has not been defined in the proposed regulations. This additional requirement may increase the compliance burden on brokers, and the absence of a clear definition for 'material change' could lead to differing interpretations and potential disputes," said Akshaya Bhansali, managing partner at Mindspright Legal. What is changing for large brokers designated as QSBs? Sebi has proposed to rely on size/scale metrics only for Qualified Stock Brokers (QSB) designations. The metrics will now include active clients, client assets held with the broker, trading volumes, end-of-day client margin obligations, and proprietary trading volumes. Compliance and grievance scores, Sebi suggested, will not be qualifying criteria, as it puts additional burden of compliance on an aspect that is already monitored. Experts said this move is essential. 'While these requirements do increase compliance and operational costs, the large customer bases and high transaction volumes handled by QSBs make it essential for ensuring transparency and maintaining the credibility of market intermediaries," said Prakarsh Gagdani, chief executive officer (CEO) at Torus Digital. However, Narinder Wadhwa, managing director & CEO of SKI Capital Services Ltd, said the debate of compliance burden for QSBs being proportionate or overly stringent remained, potentially affecting competitiveness. How is recordkeeping and digitisation being streamlined? Sebi has proposed permitting electronic maintenance of books or records, essentially removing physical-security-era requirements, which includes paper contract note copies. Brokers must inform exchanges (not Sebi directly) where books/records are maintained, Sebi said, aligning submissions and communication through the exchanges. 'Changes in documentation, compliance technology, and reporting structures could require significant investment. There could be possible shifts in client onboarding norms, record-keeping formats, and real-time reporting obligations", Wadhwa said. How will fees and net worth requirements change? The consultation paper removes references to the outdated 1990s transition-year and has standardised fee payment processes and timelines through exchanges and online gateways. Exchanges collected these fees segment-wise. Sebi also proposed to remove the fixed base net worth and the formula-based variable net worth in the current regulations tied to client cash balances at brokers. The regulator reasoned that the provisions became less relevant after it introduced the mandatory upstreaming of client funds to clearing corporations. Through this, the investors' clear credit balances are transferred by the broker to the clearing corporation every day. Experts said the absence of clarity on how 'variable net worth" will be computed created uncertainty for capital planning. 'The shift of variable net worth to circulars means Sebi can change the formula quickly. Helpful if upstreaming lowers balances, but risky if they widen what counts. Large brokers can absorb swings; smaller ones may face sharper, less predictable capital demands", Ajay Kejriwal, executive director at Choice Equity Broking, said. What is the new power to relax strict enforcement? The regulator proposed an enabling provision to relax strict enforcement in specified circumstances such as undue hardship, procedural or technical issues, factors beyond control, and non-relevance for a class. It proposed including a mechanism for confidential treatment of requests or responses for up to 180 days. Legal experts said the discretion seemed inherently subjective. 'Without clearly defined parameters, market participants may challenge decisions as being arbitrary. Further, the provision allows for confidential treatment of such requests and Sebi's responses. So, such relaxations will not be in the public domain for up to 180 days (or not at all if withdrawn)", Bhansali said. Chandwani echoed the view and said that without precise criteria and published interpretive guidance, this flexibility could fuel interpretational uncertainty and litigation. Will inspections increase or be better coordinated? Beyond Sebi's inspection powers, recognised stock exchanges, clearing corporations, and depositories may conduct inspections as per their by-laws, the consultation paper said. Sebi and MIIs will be allowed to conduct joint inspections, aiming to avoid multiple duplicative checks. Lawyers said without a clearly defined jurisdictional hierarchy, regulated entities could be subjected to overlapping inquiries into the same issues. 'This not only creates procedural inefficiency but also heightens the risk of conflicting conclusions between authorities", Chandwani said. What timelines and operational impact should brokers expect? Industry sources note that adaptation windows for paperwork/policy updates could be a few months, with longer lead times for tech/algo controls and full QSB governance uplift; Sebi historically staggers implementation via circulars and master circular updates. 'Most brokers could adapt in six months for paperwork and policy updates, nine months for tech/algo compliance, nine months for full QSB governance upgrades, with likely phased timelines for any new net worth formula, giving smaller brokers extra breathing room", Kejriwal said. 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Mint
4 days ago
- Business
- Mint
Mint explainer: Sebi moots reboot of 1992 broker rulebook
The Securities and Exchange Board of India (Sebi) has issued a consultation paper proposing a ground-up rewrite of the 1992 Stock Brokers Regulations to simplify compliance, codify key circulars, and align the rules with today's tech-driven markets. It has invited public comments until 3 September. Mint breaks down what changes most for brokers, investors, and markets. What are the proposed definitions? Sebi has included definitions of 'algorithmic trading', which is order generated using automated execution logic and 'execution only platform (EOP)', a digital/online platform that facilitates subscription, redemption and switch transactions in direct plans of mutual fund schemes. Sebi also deleted the definition of a 'small investor' as the threshold of ₹50,000 was considered an outdated classification. Legal experts who advise brokers believe the proposed definitions may be too broad or missing out on spelling out exceptions. Sonam Chandwani, managing partner of KS Legal, said the proposed algorithmic trading definition is so broad that it risks capturing everything from basic order-routing tools to high frequency trading (HFT). 'This approach could subject low-risk participants to disproportionate compliance obligations designed for far more sophisticated and potentially disruptive trading systems." Chandwani said. How will registration and governance change? Sebi's consultation paper has specified that at least one designated director must be resident in India (182+ days per financial year) for broker-companies at registration consideration. It also specified that brokers must intimate Sebi (via an exchange) and other market infrastructure institutions (MIIs) of any 'material change" in registration information, not just change in control. Change-in-control approvals are to be routed through an exchange. Lawyers said the new 'material change" intimation will raise compliance overhead and may trigger disputes unless Sebi/exchanges clearly define scope, timelines, and formats through circulars. 'What is material change has not been defined in the proposed regulations. This additional requirement may increase the compliance burden on brokers, and the absence of a clear definition for 'material change' could lead to differing interpretations and potential disputes," said Akshaya Bhansali, managing partner at Mindspright Legal. What is changing for large brokers designated as QSBs? Sebi has proposed to rely on size/scale metrics only for Qualified Stock Brokers (QSB) designations. The metrics will now include active clients, client assets held with the broker, trading volumes, end-of-day client margin obligations, and proprietary trading volumes. Compliance and grievance scores, Sebi suggested, will not be qualifying criteria, as it puts additional burden of compliance on an aspect that is already monitored. Experts said this move is essential. 'While these requirements do increase compliance and operational costs, the large customer bases and high transaction volumes handled by QSBs make it essential for ensuring transparency and maintaining the credibility of market intermediaries," said Prakarsh Gagdani, chief executive officer (CEO) at Torus Digital. However, Narinder Wadhwa, managing director & CEO of SKI Capital Services Ltd, said the debate of compliance burden for QSBs being proportionate or overly stringent remained, potentially affecting competitiveness. How is recordkeeping and digitisation being streamlined? Sebi has proposed permitting electronic maintenance of books or records, essentially removing physical-security-era requirements, which includes paper contract note copies. Brokers must inform exchanges (not Sebi directly) where books/records are maintained, Sebi said, aligning submissions and communication through the exchanges. 'Changes in documentation, compliance technology, and reporting structures could require significant investment. There could be possible shifts in client onboarding norms, record-keeping formats, and real-time reporting obligations", Wadhwa said. How will fees and net worth requirements change? The consultation paper removes references to the outdated 1990s transition-year and has standardised fee payment processes and timelines through exchanges and online gateways. Exchanges collected these fees segment-wise. Sebi also proposed to remove the fixed base net worth and the formula-based variable net worth in the current regulations tied to client cash balances at brokers. The regulator reasoned that the provisions became less relevant after it introduced the mandatory upstreaming of client funds to clearing corporations. Through this, the investors' clear credit balances are transferred by the broker to the clearing corporation every day. Experts said the absence of clarity on how 'variable net worth" will be computed created uncertainty for capital planning. 'The shift of variable net worth to circulars means Sebi can change the formula quickly. Helpful if upstreaming lowers balances, but risky if they widen what counts. Large brokers can absorb swings; smaller ones may face sharper, less predictable capital demands", Ajay Kejriwal, executive director at Choice Equity Broking, said. What is the new power to relax strict enforcement? The regulator proposed an enabling provision to relax strict enforcement in specified circumstances such as undue hardship, procedural or technical issues, factors beyond control, and non-relevance for a class. It proposed including a mechanism for confidential treatment of requests or responses for up to 180 days. Legal experts said the discretion seemed inherently subjective. 'Without clearly defined parameters, market participants may challenge decisions as being arbitrary. Further, the provision allows for confidential treatment of such requests and Sebi's responses. So, such relaxations will not be in the public domain for up to 180 days (or not at all if withdrawn)", Bhansali said. Chandwani echoed the view and said that without precise criteria and published interpretive guidance, this flexibility could fuel interpretational uncertainty and litigation. Will inspections increase or be better coordinated? Beyond Sebi's inspection powers, recognised stock exchanges, clearing corporations, and depositories may conduct inspections as per their by-laws, the consultation paper said. Sebi and MIIs will be allowed to conduct joint inspections, aiming to avoid multiple duplicative checks. Lawyers said without a clearly defined jurisdictional hierarchy, regulated entities could be subjected to overlapping inquiries into the same issues. 'This not only creates procedural inefficiency but also heightens the risk of conflicting conclusions between authorities", Chandwani said. What timelines and operational impact should brokers expect? Industry sources note that adaptation windows for paperwork/policy updates could be a few months, with longer lead times for tech/algo controls and full QSB governance uplift; Sebi historically staggers implementation via circulars and master circular updates. 'Most brokers could adapt in six months for paperwork and policy updates, nine months for tech/algo compliance, nine months for full QSB governance upgrades, with likely phased timelines for any new net worth formula, giving smaller brokers extra breathing room", Kejriwal said.
Mint
5 days ago
- Business
- Mint
Sebi drafts rewrite of 30-year-old broker rules for a tech-first market
The Securities and Exchange Board of India on Wednesday proposed a comprehensive rewrite of its 30-year-old Stock Brokers Regulations to simplify compliance and align the rules with today's tech-driven markets. The capital markets regulator has invited public comments until 3 September. The draft regulation, meant to replace the 1992 framework, consolidates years of circulars into the main regulations and harmonizes provisions with newer laws like the Companies Act, 2013. The 1992 regulations were built for a market of physical paperwork, slower settlements, and fewer retail participants. Sebi's working group recommended a clearer, streamlined framework that reflects electronic trading, rapid settlement cycles and the scale of modern retail investing. This proposal is in line with the Sebi chairman Tuhin Kanta Pandey's emphasis on optimizing regulations. The Association of National Exchanges Members of India (ANMI) informed Mint that it is reviewing the proposals and will send in its comments to Sebi in due course of time. In its paper, Sebi has introduced formal definitions for key participants and practices, such as algorithmic trading, execution-only platforms for direct mutual fund transactions and proprietary trading, to keep the rules technology-neutral. The consultation paper states that record-keeping can be done in electronic form across the board, acknowledging the end of physical share delivery and easing archival burdens. It suggested that stock brokers can route key intimations and filings through exchanges and outdated registers tied to broker-to-broker dealings within the same exchange will be eliminated. The index and forms of the regulations have also been cleaned up to remove the defunct sub-broker category and duplicative disclosures, with the 'fit and proper' declarations folded into application forms. Sebi has proposed that brokerages that are structured as companies must have at least one designated director resident in India for 182 days in a financial year to anchor accountability. Additionally, material changes in information provided at registration would need prompt intimation through the stock exchanges where the broker is a member. To be clear, Sebi proposed that any change in control of a brokerage will require prior Board approval, routed through one of the stock exchanges where the broker is a member. Legal experts who represent brokers said this framework centralizes the approval process, reduces procedural ambiguity and strengthens regulatory supervision over broker governance. 'This centralized approval framework enhances supervisory clarity and investor protection by tightening governance around ownership transitions,' said Ketan Mukhija, senior partner at Burgeon Law. Others said that informing about change of control to the Board and exchanges is an important change, as the information will protect the clients of the broking companies. 'The intent is to align the procedure, rules and regulations for a transparent environment. Information regarding any material change from information already submitted at the time of registration will have to be submitted to the Board as well,' said Nirali Mehta, partner at Mindspright Legal. The draft codifies core duties that had been set out through circulars. Those include strict segregation and upstreaming of client funds and collateral, robust KYC and order evidence, confidentiality of client data, and participation in Sebi's Online Dispute Resolution platform, among others. Sebi has specified that the 'Qualified Stock Broker' (QSB) tag will be assigned using five measurable parameters: active clients, client assets, trading volumes, end-of-day client margin obligations, and proprietary volumes. The regulator has proposed dropping qualitative scores on compliance and grievance redressal as entry criteria. Along with the regulator, the exchanges, clearing corporations, and depositories would now have explicit powers to conduct inspections, including joint inspections to avoid duplication. Sebi also proposed a calibrated power to relax strict enforcement in limited circumstances, such as technical or procedural hardship, sector irrelevance, or broader factors beyond a class of persons' control, subject to reasoned orders. Aiming to modernize fee schedules, the regulator proposed removing archaic references from the 1990s and aligning collection through exchanges and recognized infrastructures, with the provision for interest levy for delays.
