Govt amends SCRA Rules to give regulatory clarity to brokers

The consultation paper proposed allowing brokers to undertake reasonable investment and business activities while ensuring the protection of client funds.
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The Finance Ministry on Monday notified an amendment to the Securities Contract Regulation Act (SCRA), granting stock brokers greater flexibility in deploying their surplus cash.

By adding a proviso to Rule 8 of the SCRA, the notification clarified: “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.” This change aims to strike a balance between maintaining market integrity and providing commercial flexibility to brokers.

The amendment follows a consultation paper issued last year. “The amendment provides regulatory clarity to enhance the ease of doing business for brokers,” a Finance Ministry statement announced. The change took effect on Monday.

Acknowledging the increasing scale and interconnectedness of the financial sector, as well as the evolving nature of brokers’ businesses, the Economic Affairs Department deemed it necessary to review the adequacy of existing safeguards within the Rules. The goal was to ensure the Rules’ intent is upheld without unduly restricting stakeholder activities. “This will ensure that market intermediaries continue to support the development of India’s capital markets in a transparent and well-regulated manner,” the statement emphasised.

The amendment was implemented after careful consideration of feedback from stakeholders and alignment with the government’s broader focus on providing regulatory clarity and improving the 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,” the Ministry reiterated.

Previously, Rule 8 generally prohibited brokers from engaging as a principal or employee in any business other than securities or commodity derivatives, except as a broker or agent in other businesses not involving personal financial liability. The term ‘any business’ lacked a clear definition in the Rule, leading to varying interpretations.

The consultation paper proposed allowing brokers to undertake reasonable investment and business activities while ensuring the protection of client funds. The government recognised that prohibiting brokers from making investments, including in group companies, could impose unreasonable limitations on their ability to utilise retained earnings.

Published on May 19, 2025

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