Sebi rationalises penalty framework for stock brokers to enhance ease of doing business

New Delhi: In a major step towards improving ease of doing business and compliance, the Securities and Exchange Board of India (Sebi) on Friday rationalised the penalty framework for stockbrokers.

The regulator has reduced the number of penalties imposed by stock exchanges to 90 from 235.

In the first phase, Sebi reviewed 235 existing penalty items — removing 40, reclassifying 105 minor procedural lapses as “financial disincentives,” and retaining 90 penalties. The revised framework aims to remove inconsistencies across exchanges, prevent multiple penalties for the same violation by in-troducing a lead exchange system, and replace the term “penalty” with “financial disincentive” for mi-nor lapses to avoid reputational harm.

Certain monetary penalties will now be replaced with advisories or warnings for first-time violations, while the maximum penalty for specific breaches will be capped. The new framework will also apply to ongoing enforcement cases, providing relief to brokers.

Previously, brokers with memberships across multiple exchanges often faced varying and duplicate penalties for identical infractions. Sebi noted that the word “penalty” carries a stigma and creates un-necessary reputational risks when used for minor procedural errors.

To address these issues, Sebi formed a Working Group with exchange and broker representatives to review and rationalise the system.

Based on its recommendations, exchanges have now issued the revised framework in consultation with Sebi.

Additionally, Sebi has implemented Samuhik Prativedan Manch, a technology-based unified reporting platform allowing brokers to file compliance reports with a single exchange.

Phase one, covering 40 reports, began on August 1, and phase two — adding 30 more — will roll out from October 15, further reducing compliance costs.