Department of Economic Affairs amends Rule 8 of the Securities Contracts (Regulation) Rules, 1957.

Amendment gives regulatory clarity to enhance ease of doing business for brokers.

The Department of Economic Affairs (DEA), Ministry of Finance, amended Contracts (Regulation) Rules (SCRR), 1957, via Gazette Rule 8 of the Securities Notification G.S.R. 318(E).

Rule 8 – Qualifications for membership of a recognised stock exchange – Securities Contracts (Regulation) Rules, 1957:

The rules relating to admission of members of a stock exchange seeking recognition shall inter alia provide that:

(1) No person shall be eligible to be elected as a member if –

• he is less than twenty-one years of age;
• he is not a citizen of India; provided that the governing body may in suitable cases relax this condition with the prior approval of the 1 [Securities and Exchange Board of India];
• he has been adjudged bankrupt, insolvent, or have a history of conviction for fraud or dishonesty. 
• he has compromised with their creditors, and have not paid at least 83% of the outstanding debt

(2) The rules also prohibit brokers from engaging in any business other than securities or commodity derivatives, where they don’t have personal financial liability. 

Amended Securities Contracts (Regulation) Rules, 1957 – The Ministry of Finance amended Rule 8 of the Securities Contracts (Regulation) Rules, 1957, via Gazette Notification G.S.R. 318(E), clarifying that broker investments are generally not considered business unless they involve client funds, client securities, or create financial liabilities. This amendment, effective May 19, 2025, aims to enhance ease of doing business for brokers and strengthen market efficiency by streamlining compliance.

In exercise of the powers conferred by section 30 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Central Government hereby makes the following rules further to amend the Securities Contracts (Regulation) Rules, 1957, namely: —

1. (1) These rules may be called the Securities Contracts (Regulation) Amendment Rules, 2025.

  (2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Securities Contracts (Regulation) Rules, 1957, in rule 8, —

(i) in sub-rule (1), in clause (f), after the first proviso, the following proviso shall be inserted, namely: —

“Provided further those investments made by a member shall, at all times, not be construed as business except when such investments involve client funds or client securities, or relate to arrangements which are in the nature of creating a financial liability on the broker”;

(ii) in sub-rule (3), after clause (f), after the first proviso, the following proviso shall be inserted, namely: —

“Provided further those investments made by a member shall, at all times, not be construed as business except when such investments involve client funds or client securities, or relate to arrangements which are in the nature of creating a financial liability on the broker.”. 

Key Points – Amendment to Rule 8:

The amendment specifically addresses Rule 8 of the Securities Contracts (Regulation) Rules, 1957, which outlines qualifications for stock exchange membership.

Clarification on Broker Investments:

The amendment clarifies that broker investments will not be treated as business activities unless they involve client funds or client securities, or relate to arrangements that create financial liabilities on the broker.

Enhanced Ease of Doing Business:

The amendment is intended to reduce compliance burdens for brokers and enhance the overall ease of doing business in the capital markets.

Strengthened Market Efficiency:

By providing regulatory clarity and streamlining compliance, the amendment aims to contribute to a more efficient and transparent capital market.

Stakeholder Feedback:

The amendment was made after considering feedback from various stakeholders, including a consultation paper issued in September 2024

The aforesaid amendment gives regulatory clarity to enhance ease of doing business for brokers. After taking note of the concerns raised by various stakeholders over certain provisions in the said Rules, the DEA had released a Consultation Paper in September, 2024, (Consultation Paper for Public Comments on Rule 8 SCRR (1957)) inviting stakeholder comments.

Given the growth in the scale and interconnectedness of the financial sector and the evolution of nature of business of brokers with time, the DEA felt it necessary to review the appropriateness of safeguards embedded in the Rules so that the intent of the Rules is served without constraining activities of the stakeholders.

The amendment has been carried out after due consideration of feedback from the stakeholder and is part of the broader emphasis of the Government to provide regulatory clarity and enhance ease of doing business in the financial sector. It will ensure that market intermediaries continue to support the development of India’s capital markets in a transparent and well-regulated manner.

Team Maverick