Relief for brokers as Sebi rationalises penalties by exchanges as part of ease of business

Relief to brokers as Sebi rationalises penalties imposed by exchanges, as part of Ease of Doing Business

In a move to enhance ease of business for stock brokers, capital market regulator Sebi has rationalised and standardised the penalty framework levied by stock exchanges on October 10, ensuring that only one lead exchange imposes penalties for common violations across exchanges.

Once the lead exchange imposes a penalty, no other exchange will penalise the broker for the same violation again. In the current penalty framework, penalties for similar observations differ across exchanges, and in some cases, brokers having membership with multiple exchanges face multiple penalties for the same observation.

Sebi’s communication said, “In a significant step towards enhancing ease of doing business for stock brokers, it has been decided to rationalize and standardise the penalty framework for levying penalties on stock brokers by stock exchanges.”

For procedural or technical lapses, the term ‘penalty’ will be replaced by ‘financial disincentive’ to avoid unnecessary reputational impact on brokers. Sebi said, the term ‘penalty’ is generally associated with stigma and using it for procedural lapses or technical errors creates unintended perception and reputational risk for entities.

Out of 235 violations reviewed in the first phase, Sebi has removed penalties on 40 and converted 105 into financial disincentives, leaving only 90 offences with rationalised penalties. Even among these, penalties on 36 violations have been rationalized. Now, for 7 violations the exchanges will issue a warning on the first instance, for 6 violations there will be a cap on the amount of penalty, for 29 violations, there is no change. As per the framework, 12 new penalties have been introduced.

In a major relief for brokers, Sebi’s communication said, “The revised penalty framework shall also be made applicable to ongoing enforcement proceedings, providing major relief to the stock broking community. The rationalised penalty framework shall facilitate ease of doing business and ease of compliance for stock brokers.”

Brokers had put a representation to Sebi and the exchanges to address the issue, following which Sebi constituted a working group comprising representatives from exchanges and broker associations to review the existing penalty framework. Based on the recommendations of the working group and subsequent discussions with stakeholders, the revised penalty framework has been issued by the stock exchanges in consultation with Sebi on October 10, 2025.

On March 26 this year, Moneycontrol had reported that brokers could expect relief on the penalty issue, as Sebi was working on a “one event, one penalty” mechanism.

Additionally, Sebi also announced the expansion of the Samuhik Prativedan Manch (SPM), a common compliance reporting system, to cover 30 more reports from October 15, 2025, further reducing compliance costs. Sebi’s release said, “In the first phase, submission of 40 compliance reports was operationalised. As an additional measure of ease of doing business, the second phase will be implemented from October 15, 2025, with the operationalisation of 30 additional compliance reports.”

Samuhik Prativedan Manch is a technology-based common reporting mechanism that enables brokers to file a single report at one stock exchange instead of multiple exchanges. This common reporting across stock exchanges has been implemented with effect from August 1, 2025, to reduce compliance costs for stock brokers.