Sebi rationalizes punitive framework for stockbrokers, scraps 40 violations and reclassifies 105 as ‘financial disincentives’

Markets regulator Securities and Exchange Board of India (Sebi) has streamlined the penalty framework for stockbrokers, scrapping 40 violations and reclassifying fines for 105 violations as ‘financial disincentives’. The revised framework now provides for sanctions for 90 violations.

The decision to reclassify 105 violations as “financial barriers” is intended to remove the stigma associated with the term “punishment” for violations that are procedural in nature.

The use of the term ‘financial disincentive’ instead of ‘punishment’ for procedural or technical errors is intended to avoid unnecessary reputational impact on stock brokers, a Sebi release issued today said.

In the first phase, the market regulator assessed a total of 235 existing fine items. The decision was taken after a working group (WG) constituted by Sebi, comprising representatives of stock exchanges and broker associations, made its recommendations.

The revised penalty framework aims to eliminate inconsistencies in the nature and extent of penalties for exchanges for the same type of observation. The amended framework will ensure that penalties are not imposed by multiple exchanges for common violations.

A Sebi release called it an important step towards improving the ease of doing business for stockbrokers. It is further said that compliance for stockbrokers will also become easier. Under the current penalty framework, penalties for similar observations may vary between exchanges, and in some cases, brokers who are members of multiple exchanges may receive multiple penalties for the same observation. Sebi has introduced 12 new penalties, while 29 remain unchanged. Sanctions have been imposed for six violations.

The revised penalty framework will also be made applicable to ongoing enforcement proceedings, which will provide a major relief to the stockbroking community.

Samuhik Prativedan Manch (SPM)

Samuhik Prativedan Manch is a technology-based common reporting mechanism that enables filing of a common report on a single exchange instead of multiple exchanges. This common reporting across all exchanges has been implemented effective August 1, 2025 to reduce compliance costs for stockbrokers.

In the first phase, the submission of 40 compliance reports was operationalized. As an additional measure of ease of doing business, the second phase would be implemented from October 15, 2025 with the operationalization of 30 additional compliance reports

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