SEBI's New Penalty System: Relief for Brokerage Firms

India‘s market regulator, SEBI, is working on a new system. This system will ensure that brokerage firms don’t face multiple fines for breaking the same rule across different exchanges. The goal is to lower brokers' compliance costs, make doing business easier, and attract more foreign investors.

SEBI has doubled the disclosure threshold for FPIs from ₹25,000 crore to ₹50,000 crore to align with surging equity trading volumes. A centralized compliance portal and a points-based penalty system are under development to further streamline operations.

The reform, first proposed in 2024 and now nearing implementation, seeks to eliminate the current practice of multiple stock exchanges imposing separate penalties for the same infraction – a system that has long burdened brokers with excessive financial liabilities.

Currently, brokers who operate on multiple exchanges face multiple penalties for the same violation. For example:

• If there is a delayed technical glitch report, a broker could be fined by all 7 exchanges they operate on.

• A delay in settling client funds might lead to fines of ₹40 lakh ($48,000) from each exchange.

• Failing to resolve investor complaints properly can result in separate fines from each exchange where the broker operates.

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