Sebi Chairman Pandey Says Regulator Is Building Safeguards Against Broker Terminal Misuse, Weighing Tiered Compliance

India's markets regulator is going after the way broker trading terminals get used, and it wants to stop treating every brokerage the same.

Securities and Exchange Board of India (Sebi) chairman Tuhin Kanta Pandey laid out the plans on Saturday, Oct. 24, at the 16th International Capital Market Convention in Mumbai, organised by the Association of National Exchanges Members of India (ANMI).

"We are developing a framework to put in place safeguards to prevent misuse of trading terminals," Pandey said.

These are announced intentions. No draft rules or implementation dates were given in his remarks.

Terminal misuse

The push follows reports that some brokers allegedly let individual traders operate through proprietary trading terminals in exchange for fees or profit-sharing. Sebi has not detailed any specific cases in Pandey's remarks.

One measure under consideration is mapping terminals to their Media Access Control (MAC) addresses and static IP addresses. That would let the regulator and exchanges identify where trades are executed from and who is using the terminal.

The regulator is also reviewing its short-selling and securities lending and borrowing (SLB) framework. Pandey said the goal is better liquidity and price discovery.

Compliance scaled to the broker

Sebi is considering a graded compliance system for stockbrokers. Requirements would reflect a firm's scale, client exposure and reliance on technology, rather than applying identical obligations across the industry.

The pitch is lower costs for smaller intermediaries. How the tiers would be drawn, and which obligations would differ, has not been disclosed.

Sebi is also reworking rules for depository participants to simplify compliance and tighten defences against fraud. Inspection portals will be merged into a single digital workflow to make supervision faster and more consistent.

Other plumbing changes Pandey outlined:

• A common reporting platform extended to depositories, allowing one submission for both exchanges and depositories.
• The automated give-up and take-up facility extended to custodial clients such as portfolio management services and alternative investment funds in the cash segment, so client funds are not blocked while custodians confirm.
• Easier digital onboarding, simpler KYC and less paperwork for global investors, including non-resident Indians, with safeguards retained.

Cybersecurity and AI

Pandey told brokers to treat cybersecurity as a "business priority" and not an IT expense. He called on them to test their systems and prepare for failures.

Sebi is exploring an AI sandbox where new tools can be tested safely while giving innovators regulatory clarity. It is also finalising guidelines on responsible AI use.

"They will follow a tiered approach, with clear accountability, data controls, kill switches and human oversight, in line with IOSCO's toolkit," Pandey said, referring to the International Organization of Securities Commissions.

He noted that technology has raised the speed and reach of markets while adding new risks such as cyberattacks, and that algorithmic trading and AI adoption have widened systemic vulnerabilities.

Bonds and the retail base

Corporate bond markets remain thin. Sebi is developing a market-making framework to encourage secondary trading. Pandey said the next phase of Demat 2.0 will bring tokenised corporate bonds to the secondary market, "bringing better liquidity, lower settlement risk, and faster access to funds."

He put India's equity market capitalisation at around ₹470 lakh crore, with more than 15 crore unique investors. He cited the International Monetary Fund's 7% growth projection for India.

Sebi's investor surveys show nearly two in three households are aware of securities market products, but fewer than one in ten actively invest. Nearly half of prospective investors live in rural India, Pandey said, and the next wave in retail broking will come from towns and villages rather than big cities.

He asked brokers to rethink KYC. "You are often the first to see when the risk they take outgrows their resources. So think of KYC as 'Know Your Client's Needs.' Make it an ongoing conversation, not a one-time form-filling exercise."

"A client who understands risk invests wisely and stays invested longer. That is good for the client, for you and for the market," he added.

What comes next

The speech was addressed to brokers, the people who will live under any new terminal rules. Sebi has not released a consultation paper or circular on the terminal framework or the graded compliance tiers. Those documents, and the exact thresholds that separate a small broker from a large one, are what the industry will be watching for.

If tiered compliance is adopted, the open question is whether lighter obligations for smaller firms come with the same controls on how their terminals are used.