SEBI to Introduce Strict Safeguards to Curb Misuse of Broker Trading Terminals — October 25, 2026
The Securities and Exchange Board of India (SEBI) is drafting a dedicated regulatory framework to prevent the misuse of trading terminals operated by stockbrokers. Addressing market intermediaries at the 16th Association of National Exchanges Members of India (ANMI) International Capital Market Convention in Mumbai, SEBI Chairman Tuhin Kanta Pandey stated that the regulator is establishing firm technical safeguards alongside a graded compliance architecture tailored to brokerage size and risk profiles.
The intervention comes after regulatory audits and inspections revealed illicit practices where certain brokerages allegedly allowed outside traders to execute orders via proprietary (PRO) trading terminals under fee-sharing or profit-splitting arrangements. By routing speculative client trades as proprietary trades, operators managed to circumvent mandatory margin rules and client disclosure requirements, posing significant operational and systemic risks to market stability.
Hardware Mapping and IP Tracking
To eliminate proxy access and establish clear audit trails, the capital markets regulator plans to introduce location- and device-specific tracking mechanisms. Under the proposed blueprint, exchanges will require trading terminals to be mapped directly to:
- Unique Media Access Control (MAC) addresses belonging to authorized hardware.
- Static Internet Protocol (IP) addresses assigned to certified trading locations.
By locking terminals to specific hardware and static digital addresses, stock exchanges will be able to detect unauthorized relocations or off-site usage automatically, triggering regulatory scrutiny whenever discrepancies arise.
Graded Compliance and Digital Oversight
Recognizing the operational diversity across domestic brokerage houses, SEBI is designing a "graded compliance" framework. Rather than imposing a uniform compliance burden, broker responsibilities will scale based on business size, overall client exposure, and reliance on automated trading technologies. Large institutions with heavy technological infrastructure will face heightened oversight, whereas smaller firms will operate under proportionate obligations.
In addition, SEBI is consolidating its fragmented regulatory inspection portals into a unified digital workflow to accelerate compliance reviews and improve consistency across audits. The regulator also plans to expand the common reporting platform to cover depositories, permitting intermediaries to file single submissions for both stock exchanges and depository entities.
Cybersecurity, AI Oversight, and Market Reforms
Pandey urged broking firms to view cybersecurity as a core business priority rather than a discretionary IT expense. As retail investor participation deepens across Tier-2, Tier-3 cities, and rural India, brokerages must take proactive steps to assess client risk tolerance and ensure long-term market participation.
Beyond terminal surveillance, SEBI outlined key digital and market development initiatives:
- Artificial Intelligence Framework: Guidelines for responsible AI deployment in capital markets are being finalized. In alignment with the International Organization of Securities Commissions (IOSCO) toolkit, the framework will implement a tiered model mandating human oversight, strict data controls, and emergency "kill switches" alongside an AI regulatory sandbox.
- Capital Efficiency Measures: SEBI plans to extend the automated give-up and take-up facility in the cash segment to custodial accounts, including Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs), mitigating the need for brokers to hold idle capital while awaiting custodian confirmations.
- Debt Market Liquidity: A structured market-making framework is under review to improve liquidity and enhance secondary trading volumes in Indian corporate bonds.
