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Informist, Monday, May 19, 2025

 

NEW DELHI – Stock exchanges will have to provide in their membership rules a clause that permits a stockbroker to make investments and not be construed as conducting business other than as a broker or agent, something which is barred under the Securities Contracts (Regulation) Rules, 1957. This will, however, not apply to investments by an individual which involve client funds or client securities, or which relate to financial liability-creating arrangements.

 

The government Monday notified in the Gazette amendments to the Securities Contracts (Regulation) Rules, 1957, to give effect to this relaxation. The government had made a proposal of such a notification in a consultation paper in September last year and had sought public comments.

 

The government had argued in the consultation paper that in the securities contracts rules framed under the Securities Contracts (Regulations) Act, 1956, there was ambiguity in the clause on prohibition on stockbrokers to engage as a principal or employee in any business other than that of securities or commodity derivatives. That clause, according to the government, did not clearly define the term "any business" and made it subject to interpretation.

 

The government had said in the consultation paper that in normal course, the conduct of a business and investment of net profit are two different activities. "Prohibiting the making of any investments by a broker, including in group companies, may place unreasonable fetters on its ability to use its retained earnings as per its commercial prudence," unless it could be shown that such investments are not bonafide, the government had argued in the consultation paper.

 

With Monday's notification by the government, the stockbroker will be able to invest his net profit in any bonafide instrument or avenue except if the investments involve the use of client funds or securities, or if the investments lead to arrangements which are in the nature of creating a financial liability on the broker. According to the government, the specific restrictions will meet the Securities and Exchange Board of India's objective of ring-fencing clients' funds and securities from abuse by the broker in its various regulations and circulars.  End

 

Reported by Rajesh Gajra

Edited by Deepshikha Bhardwaj

 

 

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