SEBI rationalizes & standardises penalties on stock brokers by stock exchanges

SEBI rationalizes and standardizes the penalty framework for levying penalties on stock brokers by stock exchanges.

In the current penalty framework for stock brokers, penalties for similar observations may differ across stock exchanges, and in some cases, the stock brokers who have membership with multiple exchanges may face multiple penalties for the same violation. 

To address these issues, SEBI had 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 on October 10, 2025.

According to SEBI, the revised penalty framework aims to:

(a) remove inconsistencies in the nature and quantum of penalties across exchanges for the same type of fault.

(b) avoid imposition of penalty by multiple exchanges by ensuring that penalties will be levied by a lead exchange only for violations common across exchanges.

(c) adopt the terminology ‘financial disincentive’ in place of ‘penalty’ for procedural lapses/technical errors to avoid unnecessary reputational impact on stock brokers.

(d) rationalise certain penalties (which are actually in the nature of penalty) by way of replacing the monetary penalty with advisory/warning for first instance

(e) reduce the amount of penalty and cap the maximum amount of penalty for certain violations.

In the first phase, total 235 existing penalty items have been reviewed, details of which are as follows:

(i) Penalties have been removed on 40 violations.

(ii) Penalty for 105 minor procedural lapses has been termed as ‘financial disincentive’. Accordingly, penalties remain only for 90 violations, which have been rationalized as follows:

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

Also, Samuhik Prativedan Manch which is a common reporting across stock exchanges has been implemented with effect from August 01, 2025 in order to reduce the compliance cost for stock brokers. In the first phase, submission of 40 compliance reports was operationalised. As an additional measure of ease of doing business, the second phase would be implemented from October 15, 2025 with operationalisation of 30 additional  compliance reports.

• Issue already examined and adjudicated by CIT(Appeals), can’t be reopened on same set of facts
• TDS can’t be denied for non deposit of tax deducted by the deductor – High Court
• Cash withdrawal from bank can’t be taxed u/s 69C as unexplained expenditure – ITAT
• A bland statement of ‘fraud or concealment of facts” in GST Notice u/s 74 not sufficient – SC
• For claiming deduction u/s 57(iii), test is of purpose and connection, not actual yield – ITAT