SEBI Plans ‘One Event, One Penalty’ Framework to Ease Compliance for Brokers

Regulator Aims to Standardize Penalties and Reduce Compliance Burden

The Securities and Exchange Board of India (SEBI) is working on a ‘one event, one penalty’ mechanism, a move that aims to reduce the compliance burden on broking firms. Currently, brokers face multiple penalties for a single violation as they operate across multiple exchanges.

Sources familiar with the matter revealed that SEBI is in talks with exchanges to develop a standardized penalty framework. This would ensure that different bourses do not levy separate penalties for the same non-compliance event. SEBI has officially confirmed the ongoing discussions.

Current Penalty System Leads to High Compliance Costs

Multiple Exchanges, Multiple Fines

Presently, when a broking firm fails to comply with a regulatory or statutory requirement, each exchange it is a member of imposes separate penalties. This results in a significantly higher cumulative penalty amount for brokers.

For instance, if a brokerage firm fails to file an annual report on time, multiple exchanges can each impose a penalty, drastically increasing the total financial burden.

SEBI’s Plan to Address the Issue

To simplify compliance and reduce unnecessary financial strain, SEBI plans to implement a single-penalty system, wherein only one exchange will have the authority to penalize a firm for a particular violation.

“SEBI is considering the concept of ‘one event, one penalty’ as part of its effort to enhance the ease of doing business for brokers,” said a source close to the discussions.

Designated Exchange to Handle Penalty Imposition

New Mechanism Under Consideration

SEBI is deliberating the introduction of a ‘designated exchange’ model to assign penalty responsibility to a single exchange. Under this framework, broking firms could be allocated to a specific Exchange A or Exchange B, which alone will have the authority to impose a fine.

At present, the designated exchange model exists for administrative and supervision purposes, but SEBI may modify the framework to allow the designated exchange to handle penalties as well.

Dual SEBI Departments Collaborating on the Plan

Two SEBI departments are actively working on this initiative:

1. The department regulating exchanges, clearing corporations, and depositories.

2. The department overseeing brokerage firms.

According to sources, the plan is expected to be finalized by June 2025.

“The regulator’s intent is not to impose penalties for revenue but to encourage better compliance behavior among brokers,” a SEBI official stated.

Brokers and SEBI Working to Reduce Compliance Violations

Over 300 Violations Under Review

Currently, brokers, exchanges, and SEBI have identified nearly 300 different types of regulatory violations, each subject to separate penalties. The ongoing discussions aim to reduce the number of violations and standardize penalty amounts.

Industry players argue that many penalties arise due to technical issues beyond their control.

“For example, if a client provides margin and we attempt to upload it but fail due to a system lag, clearing corporations still impose penalties on brokers,” said a market participant.

Another industry source highlighted that some penalties are imposed due to differences in regulatory interpretation.

“A broker may not classify an event as a technical glitch, but during an inspection six months later, the exchange may decide it was. In such cases, penalties could reach ₹40 lakh,” he explained.

Proposal for a Point-Based Compliance System

Alternative to Monetary Fines

To make penalties more fair and predictable, market participants have suggested replacing the current monetary fine system with a point-based compliance system.

“If violations were tracked using a point system, brokers could be given warnings first, and penalties could be imposed only after reaching a threshold,” suggested an industry expert.

SEBI and Exchanges Developing a Common Compliance Portal

Single Filing Platform for Brokers

In addition to the ‘one event, one penalty’ mechanism, SEBI and stock exchanges are working on a centralized compliance filing portal. This would allow brokers to submit filings in one place instead of separately reporting to multiple exchanges.

Currently, a dozen compliance reports are being tested on the platform, and further developments are underway.

“The development of a common portal is in progress to enable brokers to file reports just once across all exchanges. SEBI is also taking steps to encourage voluntary compliance,” SEBI stated.

Despite these developments, SEBI has not provided a specific timeline for launching the platform.