SEBI to Introduce Regulations to Prevent Misuse of Broker Trading Terminals — October 27, 2026
The Securities and Exchange Board of India (SEBI) is drafting a dedicated regulatory framework to stop the misuse of broker trading terminals, aiming to clamp down on unauthorized access and the circumvention of mandatory risk controls.
Speaking at the 16th Association of National Exchanges Members of India (ANMI) International Capital Market Convention in Mumbai, SEBI Chairman Tuhin Kanta Pandey affirmed that the market regulator is formulating targeted safeguards for the brokerage ecosystem.
"We are developing a framework to put in place safeguards to prevent misuse of trading terminals," Pandey said.
Tackling Proprietary Terminal Loopholes
Under existing market regulations, orders sent to an exchange must be classified either as client trades (CLI) or proprietary trades (PRO). Regulatory inspections previously revealed instances where certain brokerages rented out proprietary trading terminals to third-party traders for commissions or profit-sharing arrangements.
Because brokers use their own collateral at the exchange level to support proprietary trading, outside traders operating via these terminals were able to bypass upfront margin requirements. Additionally, audits uncovered cases where terminals officially registered in financial hubs like Mumbai were being operated from entirely different states without exchange authorization.
To tighten terminal tracking, the regulatory mechanism will rely on technical surveillance by exchanges:
- MAC Address Mapping: Tracking the unique Media Access Control (MAC) address assigned to the physical network interface of authorized terminals to ensure hardware authentication.
- Static IP Verification: Enforcing fixed internet protocol tracking so exchanges are alerted automatically whenever a trading terminal changes location or connects from an unauthorized network.
- Centralized Inspection Portals: Transitioning regulatory supervision into a unified digital workflow to make monitoring and compliance audits faster and consistent across firms.
Graded Compliance for Stockbrokers
Addressing the broader brokerage landscape, Pandey signaled a shift away from a uniform regulatory model toward a "graded compliance" structure. Under this approach, compliance obligations will correspond directly to an intermediary’s operating scale, total client exposure, and dependence on technology.
Pandey also urged market participants to view digital risk through an operational lens, stating that the ecosystem must treat cybersecurity as a "business priority" rather than merely an information technology expense.
AI Governance and Investor Protection
Beyond terminal surveillance, SEBI is setting up an artificial intelligence (AI) sandbox where firms can test new algorithmic and automated systems safely under regulatory oversight.
Key Principles of the Proposed AI Framework:
- Guidelines aligned with the International Organization of Securities Commissions (IOSCO) toolkit.
- A tiered supervisory approach demanding clear corporate accountability and strict data governance.
- Mandatory implementation of system-level "kill switches" and continuous human oversight.
Highlighting the influx of retail capital from smaller cities and towns, Pandey urged brokers to rethink their interactions with retail clients, suggesting that KYC should evolve into "Know Your Client's Needs". Brokers were encouraged to proactively identify when client risk outgrows financial capacity, ensuring that investors deploy capital prudently and remain engaged in Indian capital markets over the long term.
