SEBI Introduces Unified Penalty Framework for Stock Exchanges

Stockbrokers have membership in multiple exchanges, and each exchange follows its own framework for taking penal actions for the violations / non-compliances identified by them. Differential penalty structure across exchanges has often resulted in inconsistencies, regulatory arbitrage for stockbrokers.

In order to enhance ease of doing business / compliance, transparency and to standardize penalty structure, Securities and Exchange Board of India (SEBI) constituted a Working Group with the mandate to review, harmonize, and streamline the penalty framework applicable across all stock exchanges. The Working Group was constituted keeping in mind a balanced stakeholders representation comprising of members from all recognized stock exchanges and stockbroker associations viz. ANMI, BBF & CPAI.

Accordingly, the Working Group proposed a penalty structure for SEBI’s consideration. SEBI, after reviewing the proposal, provided the penalty structure to be adopted by all stock exchanges.  Procedural lapses may not be viewed and measured through the same regulatory lens as that of material violation / non-compliance, and accordingly financial penalties arising out of some of the erstwhile procedural violations / non-compliances have been classified as ‘financial disincentive’. 

This unified framework is expected to promote ease of doing business / compliance for stockbrokers.