Source: SEBI
In a move to enhance the ease of doing business for stock brokers, the Securities and Exchange Board of India (SEBI), in consultation with stock exchanges, has rationalized and standardized the penalty framework for market intermediaries. The revised guidelines, issued on October 10, 2025, aim to eliminate inconsistencies, avoid duplication of penalties, and reduce the compliance burden on brokers.
Previously, the penalty structure for similar violations could differ across various stock exchanges, leading to confusion and regulatory arbitrage.Moreover, brokers with memberships on multiple exchanges often faced the brunt of multiple penalties for the same infraction.
Key Changes in the Revised Framework:
The new framework, a result of a consultative process with a working group of representatives from exchanges and broker associations, introduces several key changes:
- Standardization and Uniformity: The revised framework removes inconsistencies in the nature and quantum of penalties across exchanges for the same type of violation.
- “Lead Exchange” Concept: To prevent the imposition of multiple penalties for the same offense, a “lead exchange” will now be responsible for levying penalties for violations that are common across exchanges.
- Shift in Terminology: For procedural lapses and technical errors, the term “penalty” will be replaced with “financial disincentive.” This change is intended to avoid the stigma and reputational risk associated with the word “penalty” for minor issues.
- Rationalization of Penalties: Out of 235 existing penalty items reviewed in the first phase, penalties on 40 violations have been completely removed. Furthermore, penalties for 105 minor procedural lapses have now been reclassified as ‘financial disincentives’, leaving only 90 violations that will attract penalties.
- Lighter Penalties for First-Time Offenses: For certain violations, a monetary penalty for a first-time offense will be replaced with an advisory or a warning.
- Capping of Penalties: The amount of penalty for certain violations has been reduced, and a maximum cap has been introduced.
This revised framework will also apply to ongoing enforcement proceedings, providing significant relief to the stock broking community.
Streamlining Compliance Reporting with Samuhik Prativedan Manch (SPM):
Complementing the penalty reforms, SEBI is also enhancing the ease of compliance through a technology-based common reporting mechanism known as the Samuhik Prativedan Manch (SPM). Implemented from August 1, 2025, the SPM allows brokers to file common reports at a single stock exchange instead of multiple filings.
The second phase of the SPM is set to be implemented from October 15, 2025, which will operationalize an additional 30 compliance reports through this unified platform, further reducing compliance costs for brokers.
These comprehensive reforms by SEBI are expected to foster a more business-friendly environment, bringing greater transparency and efficiency to India’s capital markets.
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