The Securities and Exchange Board of India (SEBI) has finalized a proposal to curb the misuse of proprietary trading terminals, which brokers use for self-trading. According to sources, the policy has been broadly finalized and shared with stakeholders. Stock exchanges will be required to implement the new rules after consulting brokers, who will be given a reasonable timeframe to comply.
New Measures to Track Trading Terminals
To prevent misuse, SEBI will require stock exchanges to map MAC ID and Static IP addresses to track the exact location of trading terminals. If a terminal is moved, the exchange will detect the change and raise a query, ensuring better monitoring.
A MAC address (Media Access Control address) is a unique hardware identifier assigned to a device’s network interface, while a Static IP address is a fixed internet address assigned by an Internet Service Provider (ISP). These measures will help exchanges verify the authenticity and location of trading terminals.
SEBI also considered geo-tagging to track terminal locations, but brokers opposed this due to high costs and implementation challenges.
Regulatory Concerns Over Proprietary Terminals
SEBI and stock exchanges, during inspections, found that some brokers were renting out proprietary trading terminals for a fee or commission. Since traders using these terminals did not have to pay margins, brokers used their own funds with exchanges to cover trades. This business model became popular after SEBI introduced stricter margin rules.
In some cases, trading terminals registered in Mumbai were found operating in different states, raising concerns about regulatory violations.
Violation of SEBI’s Margin Requirements
By SEBI regulations, trades must be labeled as either a client trade (CLI) or a proprietary trade (PRO) when placed on an exchange. However, some brokers misused proprietary terminals by allowing traders to place client trades under the “PRO” category. This helped them bypass margin requirements, violating SEBI’s trading norms.
SEBI has warned brokers multiple times and urged them to ensure compliance among their authorized persons. A former SEBI official commented that if brokers want to trade for themselves, they should use existing broking platforms rather than misusing proprietary terminals.
With these new regulations, SEBI aims to close loopholes and strengthen transparency in proprietary trading.
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