SEBI plans broker terminal safeguards, graded compliance, short selling review

SEBI, India's securities market regulator, is preparing safeguards against the misuse of stockbrokers' trading terminals and is exploring "graded" compliance rules that would scale a broker's obligations to its size and risk, its Chairman Tuhin Kanta Pandey said at the 16th International Capital Market Convention in Mumbai on 24 October 2026. He also said SEBI is reviewing its short selling and securities lending rules to improve liquidity and price discovery, and is finalising guidelines on the responsible use of artificial intelligence in the market. All of these are proposals; no final rules have been issued.

A trading terminal is the software and connection a broker uses to place orders on the stock exchanges. Brokers trade both for clients and for themselves; trading with the firm's own money is called proprietary trading. The concern Pandey described is that some brokers have been renting out access to their proprietary accounts to outside traders, in return for fees or profit-sharing. That puts trades on the exchange under a broker's name while the real decision-maker is someone else, which makes it harder for regulators and exchanges to know who is trading, to check risk and to detect manipulation.

Linking terminals to a MAC address (a unique hardware identifier of a network device) and a static IP address (a fixed internet address) would let SEBI and the exchanges see exactly which machine, at which location, placed an order. It is a technical fix for an accountability problem: if a terminal is used from an unregistered machine or place, it would stand out.

Graded compliance addresses a different complaint. India's brokers range from very large online platforms to small firms with few clients. Applying identical rules to all of them can be costly for small brokers while not going far enough for the largest. Scaling obligations to size, client exposure and technology dependence is meant to strengthen supervision where risk is highest without loading the same burden on everyone.

Short selling means selling shares one does not own, in the hope of buying them back later at a lower price; securities lending and borrowing is how traders borrow those shares. Pandey said the review aims to improve liquidity, which is the ease of buying and selling without moving prices, and price discovery, the process by which markets arrive at fair prices.

Short-term: Nothing changes for investors or brokers yet. SEBI typically publishes consultation papers on such proposals and invites public comments before issuing final rules. Brokers that offer terminal access to outside traders are likely to face closer scrutiny.

Long-term: If adopted, the terminal rules could close a route by which unregistered traders operate through brokers' accounts, and graded compliance could reshape the cost of running a small brokerage. Changes to short selling and stock lending could, over time, make it easier for institutional investors to hedge and for prices to reflect both positive and negative views.

Who is affected: Stockbrokers, especially those with proprietary trading desks; traders who use brokers' terminals; retail investors, whose protection is the stated aim; stock exchanges and clearing corporations; and institutional investors that use short selling and stock lending.

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