SEBI Introduces Measures to Prevent Trading Terminal Misuse

The Securities and Exchange Board of India (SEBI) is taking significant steps to prevent the misuse of trading terminals, as stated by chairman Tuhin Kanta Pandey during the 16th International Capital Market Convention in Mumbai. The proposed framework aims to introduce graded compliance requirements for stockbrokers, tailored to their size, client exposure, and reliance on technology. This initiative follows allegations that some brokerage firms have allowed individual traders to operate through the brokers' accounts, circumventing regulatory standards on margins and disclosures.

The framework under consideration includes mapping trading terminals to their Media Access Control (MAC) addresses and static IP addresses. This measure is intended to enhance the identification of where trades are executed and who is utilizing the terminals. In addition to terminal regulation, SEBI is also reviewing existing rules surrounding short-selling and securities lending and borrowing (SLB) to improve market liquidity and price discovery. The regulator is developing a market-making framework aimed at increasing secondary-market trading in corporate bonds, which is expected to attract more investor participation.

Pandey emphasized the need for regulatory simplification, noting that SEBI is exploring compliance measures that reflect the scale and technological dependence of stockbrokers. The regulator is also revising rules for depository participants to streamline compliance and strengthen fraud safeguards. Furthermore, a common reporting platform will be extended to depositories, allowing for a unified submission process that serves both stock exchanges and depositories.

As part of its ongoing initiatives, SEBI is addressing the additional costs stemming from parallel clearing requirements for tender offers, buybacks, and offers for sale (OFS). The regulator is also extending automated give-up and take-up facilities to custodial clients, including portfolio management services and alternative investment funds, to prevent clients' funds from being unnecessarily blocked.

Looking ahead, SEBI plans to facilitate global investor participation, including non-resident Indians (NRIs), by simplifying digital onboarding and know-your-customer requirements while maintaining necessary safeguards. With India's capital markets experiencing significant growth, including an equity market capitalization of approximately Rs 470 lakh crore, there remains ample opportunity for expanding investor participation, according to Pandey.