Sebi Rationalises Stock Brokers'' Penalty Framework

New Delhi, Oct 10 (PTI) In a significant step towards enhancing ease of doing business and compliance, markets regulator Sebi on Friday rationalised the penalty framework for stock brokers.

As a part of the rationalisation, the regulator has reduced the number of penalties levied on stock brokers by exchanges to 90 from 235.

In the first phase, a total of 235 existing penalty items have been reviewed. Of these, 40 penalties have been removed, and 105 minor procedural lapses have been termed as 'financial disincentive'. This has left it with 90 penalties, according to a statement issued by Sebi.

"The revised penalty framework aims to remove inconsistencies in the nature and quantum of penalties across exchanges for the same type of observation; avoid imposition of penalty by multiple exchanges by ensuring that penalties will be levied by a lead exchange only for violations common across exchanges; and adopt the terminology 'financial disincentive' in place of 'penalty' for procedural lapses/technical errors to avoid unnecessary reputational impact on stockbrokers," Sebi said.

Additionally, the framework rationalises certain penalties (which are actually in the nature of penalty) by way of replacing the monetary penalty with advisory or warning for first instance; and reduces the amount of penalty and cap the maximum amount of penalty for certain violations, it added.

The revised penalty framework would also be made applicable to ongoing enforcement proceedings providing major relief to the stock broking community. The rationalised penalty framework would facilitate ease of doing business and ease of compliance for stock brokers.

Before this, penalties for similar observations may differ across exchanges, and in some cases, brokers having membership with multiple bourses may face multiple fines for the same observation.

Sebi noted that the term 'penalty' is generally associated with stigma. Using the term 'penalty' for procedural lapses/technical errors creates unintended perception/reputational risk for entities..

To address these issues through a consultative approach, Sebi constituted a Working Group (WG) comprising representatives from exchanges and broker associations to review the existing penalty framework. As per recommendations of the WG and subsequent deliberations, the revised penalty framework has been issued by the stock exchanges in consultation with Sebi.

Samuhik Prativedan Manch, a technology-based common reporting mechanism which enables filing of common reports at one stock exchange instead of at multiple exchanges, has been implemented with effect from August 1 in order to reduce the compliance cost for stockbrokers.

In the first phase, submission of 40 compliance reports was operationalised, while the second phase would be implemented from October 15 with the operationalisation of 30 additional compliance reports, Sebi said.