Market regulator Securities and Exchange Board of India (SEBI) has finalized a proposal to curb the misuse of proprietary trading terminals—platforms used by brokers for self-trading. According to sources familiar with the discussions, "The policy has been broadly finalized and shared with stakeholders. Exchanges will be asked to implement it after taking input from brokers." Brokers will be given a reasonable timeframe to comply with the proposed norms.
As per the source, "Exchanges will be required to map MAC ID as well as Static ID to ascertain the exact location of trading terminals." If a terminal is moved, the exchange will detect the change and raise a query, helping curb misuse.
In technical terms, a MAC address (Media Access Control address) is a unique 12-digit identifier assigned to a computer’s network interface. It is hardware-based and distinct for each device, enabling communication within a local network. Meanwhile, a Static IP address is a fixed, unchanging 32-bit number assigned by an internet service provider (ISP) to a computer or device for internet connectivity. While SEBI also considered geo-tagging to track terminal locations, brokers opposed it due to execution challenges and high costs.
A former regulatory official commented, “If brokers want to engage in self-trading, why do they need a separate broker registration? Trades can be executed through existing broking platforms.”
During inspections, SEBI and stock exchanges discovered that some brokers had developed a business model where they rented out proprietary trading terminals for a fee or commission. Since traders using these terminals were not required to pay margins—because the broker's funds with the exchange were used to cover trades—the cost of margin money was effectively bypassed. This model gained traction after SEBI implemented stricter margining rules.
Regulators also found cases where a terminal was officially registered in Mumbai but was physically located in another state upon inspection. When an order flows from a broker’s system to the exchange, it must be labeled either as a client trade (CLI) or a proprietary trade (PRO). However, to evade SEBI’s margin requirements, some brokers allowed traders to use their proprietary terminals, falsely classifying client trades as proprietary. SEBI has repeatedly warned brokers against this practice and urged them to regulate their authorized persons.
Moneycontrol reached out to SEBI for comments, but a response is awaited.
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