In a landmark step to modernise market oversight while easing operational hurdles, the Securities and Exchange Board of India (SEBI) has released a 99-page consultation paper outlining 20 proposals aimed at the broking and algorithmic trading sectors. The reforms seek to balance business facilitation with robust investor protection, streamlining regulations while addressing evolving market practices.

Regulatory Overhaul and New Definitions

SEBI has proposed sweeping changes to stockbroker regulations, introducing fresh definitions and eliminating outdated provisions. For the first time, "Algorithmic Trading" has been formally defined as orders generated through automated execution logic, while "Execution Only Platform" (EOP) is now recognised as a category for digital platforms enabling mutual fund transactions. The definition of "Proprietary Trading" has also been clarified to distinguish between a broker’s personal trades and client trades.

These changes consolidate what were earlier broad guidelines into core stockbroker regulations, bringing more clarity and uniformity. Language has been simplified, ambiguities removed, and inconsistencies addressed, ensuring parity across sub-regulations and alignment with other capital market intermediary rules. Redundant terms such as “small investor” are being scrapped, while references are being updated to reflect current practices and the Companies Act, 2013.

Notable operational reforms include a requirement for at least one director to be based in India to boost investor trust, mandatory grievance redressal within 21 calendar days, and permission for brokers to carry out other SEBI-approved activities via Separate Business Units (SBUs). The proposals also promote digital record-keeping over physical formats, strengthening compliance efficiency.

Industry voices have welcomed the move. Punnet Tewani of Fox Trading Solutions highlighted the benefits for retail algo tool developers, saying reduced compliance burdens would foster a healthier ecosystem. Algo trader Santosh Pasi noted that the changes align the industry with modern technologies, simplify regulations, and promote investor confidence.

Strengthened Oversight and Compliance Measures

The proposals extend beyond definitional changes, addressing critical aspects of risk management and market integrity. Stockbrokers will be bound by explicit obligations, including safeguarding client funds and securities, implementing robust internal controls, and adhering to enhanced cybersecurity and cyber resilience standards.

In response to recent market controversies such as the Jane Street incident, SEBI has also sharpened its surveillance capabilities to detect and prevent fraudulent or manipulative trading behaviour. Particular focus is being given to unusual trading patterns, including the high concentration of trading in index options on expiry days—where 90% of volume occurs, with 30% of it taking place in the last hour.

For inspections, SEBI has proposed provisions allowing exchanges to conduct them independently or jointly with the regulator and depositories, reducing procedural bottlenecks. Compliance costs for brokers are expected to drop as operations become more streamlined, potentially improving profitability without compromising market safeguards.

By redefining market terms, removing outdated clauses, and enhancing both compliance and oversight, SEBI’s proposals aim to create a regulatory environment that is both business-friendly and investor-protective. The reforms—if implemented—could significantly reshape India’s capital market operations, setting higher benchmarks for transparency, security, and efficiency.