Sebi replaces 'penalty' with 'financial disincentive' to ease compliance burden on brokers
Under the existing system, brokers with memberships across multiple exchanges often faced differing penalties -- or even multiple penalties -- for the same observation.
- Oct 10, 2025,
- Updated Oct 10, 2025 6:15 PM IST
In a major step to promote ease of doing business and reduce compliance burden for stock brokers, the Securities and Exchange Board of India (Sebi) has announced a rationalised and standardised framework for levying penalties across stock exchanges. The move aims to bring uniformity, reduce duplication and mitigate reputational risks associated with minor procedural lapses.
Under the existing system, brokers with memberships across multiple exchanges often faced differing penalties -- or even multiple penalties -- for the same observation. The regulator noted that the use of the term "penalty" for minor or technical lapses created an unintended stigma for brokers.
To address this, Sebi constituted a Working Group comprising representatives from exchanges and broker associations. Based on its recommendations, the revised framework has now been rolled out by stock exchanges in consultation with the capital markets regulator.
The new system introduces the term "financial disincentive" in place of "penalty" for procedural or technical errors. It also ensures that in cases of overlapping violations, only a lead exchange will impose the penalty, thus avoiding multiple levies for the same issue.
Further, Sebi has opted for a more lenient approach by replacing certain monetary penalties with advisories or warnings for first-time lapses. The quantum of penalties has also been capped for several violations.
Out of 235 existing penalty items reviewed:
- Penalties were removed on 40 violations,
- 105 minor lapses were reclassified as financial disincentives,
- 90 violations continue to attract penalties, but with rationalisation and new capping mechanisms introduced.
In a significant relief to the broking community, the revised framework will also apply to ongoing enforcement proceedings.
Additionally, Sebi announced the second phase of Samuhik Prativedan Manch (SPM) — a unified compliance reporting platform launched earlier this year. The second phase, starting October 15, 2025, will expand the number of reports that can be filed through a single exchange from 40 to 70, further reducing compliance costs for brokers.
The regulator said these reforms collectively mark a major stride toward simplifying compliance and fostering a more business-friendly environment in India’s capital markets.
In a major step to promote ease of doing business and reduce compliance burden for stock brokers, the Securities and Exchange Board of India (Sebi) has announced a rationalised and standardised framework for levying penalties across stock exchanges. The move aims to bring uniformity, reduce duplication and mitigate reputational risks associated with minor procedural lapses.
Under the existing system, brokers with memberships across multiple exchanges often faced differing penalties -- or even multiple penalties -- for the same observation. The regulator noted that the use of the term "penalty" for minor or technical lapses created an unintended stigma for brokers.
To address this, Sebi constituted a Working Group comprising representatives from exchanges and broker associations. Based on its recommendations, the revised framework has now been rolled out by stock exchanges in consultation with the capital markets regulator.
The new system introduces the term "financial disincentive" in place of "penalty" for procedural or technical errors. It also ensures that in cases of overlapping violations, only a lead exchange will impose the penalty, thus avoiding multiple levies for the same issue.
Further, Sebi has opted for a more lenient approach by replacing certain monetary penalties with advisories or warnings for first-time lapses. The quantum of penalties has also been capped for several violations.
Out of 235 existing penalty items reviewed:
- Penalties were removed on 40 violations,
- 105 minor lapses were reclassified as financial disincentives,
- 90 violations continue to attract penalties, but with rationalisation and new capping mechanisms introduced.
In a significant relief to the broking community, the revised framework will also apply to ongoing enforcement proceedings.
Additionally, Sebi announced the second phase of Samuhik Prativedan Manch (SPM) — a unified compliance reporting platform launched earlier this year. The second phase, starting October 15, 2025, will expand the number of reports that can be filed through a single exchange from 40 to 70, further reducing compliance costs for brokers.
The regulator said these reforms collectively mark a major stride toward simplifying compliance and fostering a more business-friendly environment in India’s capital markets.